Tsakalotos admits overtaxation of Greeks on middle incomes

Finance Minister Euclid Tsakalotos on Thursday defended the government’s decision to overtax middle income earners in a bid to ease the burden on the less well-off, although he distanced himself somewhat from that policy by implying it was a necessary evil.

“We had the humanitarian crisis as an absolute priority, which is why we pressured the middle class,” Tsakalotos told Parliament’s Financial Affairs Committee, echoing the points made a day earlier by his alternate, Giorgos Houliarakis.

Tsakalotos acknowledged that overtaxation, which will now result in the so-called social dividend, “was not the optimum solution” but was the outcome of pressure from the International Monetary Fund, which he said always underestimates the performance of tax measures. “We did not want it – our arm was twisted,” he claimed, adding that the amount brought into the state coffers from combating tax evasion has been less than expected.

According to the minister the primary budget surplus is expected to overshoot the target by 1.9 billion euros. He said half of this will derive from sources other than taxes – i.e. from the increase in social security contributions due to the increase in employment (450 million euros) and voluntary declarations of incomes (448 million, of which just 200 million has been cashed in to date).

The remaining 1 billion euros of the overshoot is seen coming from a series of measures the government has inflicted on middle income earners: the tax rate hikes for those earning more than 43,000 euros per annum, the adjustment of the solidarity levy for those earning less than 43,000 euros, the increase in social security contributions, and the major tax hikes imposed on freelance professionals – particularly those on incomes between 30,000 and 32,000 euros per year. Overtaxation has also hit all classes through the value-added tax rate increases.