Haggling with creditors over tax cuts

While Finance Ministry officials await the confirmation by the country’s independent statistics authority ELSTAT that the second quarter of the year was one of rapid growth to finalize their draft budget, they also have to reckon with the fact that they are not free to determine which tax cuts they will implement; they have to ask the country’s creditors first.

Greece remains under “enhanced surveillance” as a lingering effect of the financial crisis and the fact that its debt is still rated too low.

As a result, some plans have to be shelved. For example, the Finance Ministry very much wanted to suspend the so-called “solidarity contribution,” a levy imposed in favor of the economically disadvantaged, for public servants, in addition to private sector workers, who are, for the time being, exonerated, mainly because of the effect of the pandemic for businesses. But extending the benefit to public sector employees does not pass muster with the creditors, say top ministry officials.

To push through a corporate tax cut, to 22% from 24%, the government had to convince the creditors that it will be balanced by a 0.1% hike in the tax on diesel.

The final decision about next year’s economic policy rests with Prime Minister Kyriakos Mitsotakis, who will announce it at the customary event, the keynote speech at the Thessaloniki International Fair, on September 11. This comes four days after ELSTAT publishes the second quarter growth number, which is expected to increase the likelihood that the economy will grow in 2021 much faster than the 3.6% the government estimated.

This is a significant issue for the government. For every percentage point the economy grows over the estimate, revenue will rise by about €500 million, equivalent to the cost of the reparations for the recent disastrous wildfires. And a recent estimate by National Bank put 2021 growth at 5.7%