Earlier lowering of tax-free threshold to be decided in May

Greece’s lenders are demanding that Athens agrees to introduce legislation that would reduce the tax-free threshold a year earlier than planned if it appears that the government is not on course to meet its fiscal targets.

Specifically, Athens is being asked to agree that it will adopt a provision in Parliament next May for the lowering of the tax-free ceiling from 2019 rather than 2020 if Greece is not seen reaching its primary surplus target of 3.5 percent of gross domestic product.

Kathimerini understands that the issue is referred to in the draft Staff Level Agreement (SLA) set to be concluded this week following talks between Greek government officials and representatives from the institutions.

The lowering of the threshold is intended to broaden the tax base and generate extra revenue equivalent to 1 percent of gross domestic product, or roughly 1.8 billion euros.

The agreement with the creditors calls for Parliament to adopt in May next year the clause that would lead to the tax-free threshold being lowered on January 1, 2019 if public finances are not on track in 2018. It should be noted that this would coincide with the reduction in pension spending, also worth 1 percent of GDP, that has already been lined up for 2019, regardless of whether the primary surplus target is achieved in the previous year.

The adoption of the adjustment to the tax-free level would lead to each taxpayer paying 650 euros more per year. It would also lead to around 1 million people who currently pay no income tax at all because they are below the cut-off point having to pay.

Currently, a single person earning less than 8,636 euros per year does not pay tax. This would fall to 5,636 euros. A family with two children now has a tax-free ceiling of 9,090 euros, which would be lowered to 6,135 euros.

The Greek government is hoping that it will secure an SLA by Saturday, when the creditors are due to leave Athens, despite the fact that dozens of prior actions have yet to be completed.

Should the SLA be in place for Monday’s Eurogroup, the Greek government will then have to tackle the outstanding commitments over the next few weeks, before eurozone finance ministers approve the disbursement of the next bailout tranche in January.