Targeted and temporary tax cuts are expected to be announced by Prime Minister Kyriakos Mitsotakis from Thessaloniki tomorrow, due to economic uncertainty stemming from the pandemic and the fiscal rules that will apply in 2021, as well as objections from European institutions to changes that will have a high fiscal cost, increasing the budget deficit and worsening the derailment of the budget.
According to sources, the package of measures includes a reduction of the solidarity tax and social security contributions with a time frame of one year, in 2021, and their possible extension, depending on the course of the health crisis and the budget margins.
The government's careful and conservative moves on tax breaks are also aimed at holding onto resources to deal with emergencies and unforeseen situations in the economy, as no one can safely predict the epidemiological curve and the extent of the damage to the economy.
The latest estimates of international companies and analysts speak of a W-shaped recovery and not a V, ie a rapid recovery, that will be accompanied by successive relapses with indefinite results. Even in the most optimistic scenario, the Greek economy will grow at a rate of 5 percent in 2021 compared to a recession of 8 -10 percent this year, which means that losses in GDP will not be made up for and a return to 2019 levels is postponed to 2022.
The measures that are likely to be announced by Mitsotakis are:
1-A reduction in social security contributions by two percentage points. Alternatively, a single fixed amount is considered for health contributions - for example 55 euros - or a multi-class system, as is the case for the self-employed. On the table is a new horizontal reduction in the percentage of contributions for employers and employees.
2. Reduction of the maximum social security contributions paid from 6,500 euros currently to 3,000 euros or even lower in order to alleviate professionals and the self-employed suffering from the coronavirus.
3. A reduction in the solidarity tax of up to 50 percent for incomes obtained by the taxpayers from January 1, 2021 or its abolition alternatively for those who have incomes up to 20,000 euros, from 12,000 that is valid today.
4. A reduced tax advance for 2021. The rate will be cut to 30 percent to 100 percent and is equivalent to a 1.5 billion euro liquidity injection to businesses.
5. The immediate payment in one installment of retroactive payments from the Council of State decision amounting to 1.4 billion euros to 1 million public and private sector pensioners.
6. A second wave of back dated payments for some 180,000 pensioners who left their jobs after 31 or more years of insurance.
The Thessaloniki package has already been discussed with the country’s international lenders and is expected to be finalized tonight, after the end of Eurogroup proceedings.
The Greek side is will be putting its case forth at today's talks with a specific negotiating line, presenting detailed data on the extent of damage from the coronavirus damage, the reforms program restarting the economy and the effects of the deep recession (15.2 percent in the second quarter of 2020) in budget revenue and expenditure. The main goal is for fiscal policy to be eased so that tax cuts are included in the management of the coronavirus.
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