Tax breaks must adjust to fiscal commitments soon

Greece’s new tax breaks, partly meant to keep the economy on the recovery path, will likely be challenged by the return of fiscal rules in 2023, analysts tell Kathimerini.

Constantinos Zouzoulas, managing director for research at Axia Ventures Group, tells Kathimerini that he “would expect Greece to return to the commitment for primary surpluses after 2023 but it remains to be seen what the level of these surpluses is going to be.”

“For investors, I think the primary focus this year and next is economic growth rather than fiscal discipline, following the impact of the pandemic. This is not just for Greece. Positive GDP surprises (as was the result of this year’s second quarter) will work in favor of the country rather than implementing a restrictive fiscal policy for investors,” he adds.

Zsolt Darvas, senior fellow at Bruegel, notes that “with the reinstatement of EU fiscal rules from 2023, Greece will again have to meet the 2% primary surplus target. Given the huge increase in expected GDP growth (5.9% in 2021 instead of an initial forecast of 3.6%), extra fiscal space is indeed emerging. Therefore, the tax cuts are welcome, but they have to be calibrated in a way that ensures that Greece will meet the 2% primary surplus target after 2023.”

It also appears the positive growth figures will avert a negative reaction by the creditors and the European Central Bank to the tax breaks the government is offering.

“As the ECB is part of the institutions, it is apparent that it is in accord with the country’s fiscal policy,” says Zouzoulas.

“Regarding the ECB’s decision on the pandemic emergency purchase program and the waiver on Greek government bonds, I believe that this is related to the timing of this decision. A key parameter is Greece’s economic growth and the fiscal discipline after 2022. This is to ensure debt sustainability for the ECB. Also to account for the prospects of Greece getting to investment grade between the last quarter of next year and the first half of 2023,” he points out. “My view is that the government’s strategy that aims at a stronger-than-expected GDP growth and sensible fiscal expansion (in a way that helps support/expand growth and attract investments) will act as an enabler to the effort to get to investment grade,” he concludes.