Bonus from contribution cut
Greece is edging very close to both the European average and that of Organization for Economic Cooperation and Development countries in non-salary costs with the reduction of social security contributions by one percentage point that will apply from the beginning of 2025, for both private and public employees.
Throughout the previous period, in their reports on the social security and tax system of Greece, international organizations raised the alarm by pointing out that the high non-salary costs constitute a strong disincentive for investments, while eating into the income of workers.
Given the further reduction by half a point in 2027, the total burden on employers and employees will have decreased by 5.9 percentage points from 2019, as a result of which Greece is approaching the OECD average and that of European countries in terms of the tax wedge of social security at work, at 34.5%.
Employer organizations and economists agree that this is the government’s most important announcement, as it is expected to have multiplier benefits for the domestic economy: It strengthens the incentive for employment and increases the net income received by the employee, increases investment and leads to new hiring on the part of businesses, as the cost per employee decreases, and the competitiveness of the economy grows. As a result, the money from the rises in productivity, employment and ultimately wages increase the revenues of the Single Social Security Entity (EFKA), contributing to its sustainability.
In 2019 the Foundation for Economic and Industrial Research (IOBE) estimated that a reduction of contributions by two percentage points would strengthen the incentives for employment and increase participation in the country’s workforce by approximately 1.5%. It emphasized that approximately 100,000 additional unemployed people would join the labor market. Since then, contributions have decreased by 4.4 percentage points, and from 2025 they will decrease by an additional point.
Bank of Greece Governor Yannis Stournaras had recently set the reduction of contributions as imperative to strengthen the competitiveness of Greek businesses and preserve jobs, as the wage bill is estimated to increase by 4.4% in 2024.
