FINANCE

Higher takings permit tax cut

The government is planning on breaks for middle and lower incomes, but VAT stays intact

Higher takings permit tax cut

The large increase in revenue from income and value-added tax – as the electronic tools for curbing tax evasion are paying off – provide the government with the leeway to move forward with permanent tax cuts as of 2025.

Priority will be given to relieving the burden on middle-income earners, the most wronged category of taxpayers, especially in the years of the financial crisis. Freelancers and the self-employed are already the big winners from the government’s previous tax and social security reform in 2019. Their deductions fell significantly as a result of lower tax rates, as well as a cut in advance tax which shrank to 55% from 100%.

Now, the intentions of the National Economy and Finance Ministry include the reduction of tax rates on middle incomes (18,000 to 50,000 euros earned per year), but also of the lower ones, who see much of their salary increases going to taxes. In other words, despite the fact that employees and pensioners saw an increase in their nominal salary or benefit, their real disposable income has decreased, as they were burdened with higher taxes, due to non-adjustment of the tax brackets.

However, changes are also expected for “big” incomes, i.e. over €40,000 euros. The government currently applies a rate of 44% for every euro over €40,000. In doing so, it effectively removes any incentive for anyone to work harder and earn more money. It is extremely likely that the maximum rate will soon apply only to incomes greater than €50,000. It is noted that the US has seven tax brackets, with the seventh (highest) bracket taxing every additional dollar of income over $609,350 at a rate of 37% in 2024.

There will also be changes to the system of the arbitrary estimate of incomes based on assets owned (“tekmiria” in Greek), which is now considered obsolete.

However, a VAT reduction is not on the table. This is because the government considers that the VAT revenue minimizes the risk of a serious fiscal hole, while enabling economic policy.

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