Budget Office: €41 Billion in Greece’s Shadow Economy

According to Professor Ioannis Tsoukalas, head of the Budget Office, Greece’s shadow economy amounts to approximately €41 billion, equivalent to 27% of household consumption, which stands at €151 billion according to ELSTAT. Only €110 billion is declared as income, leaving a notable gap. This discrepancy does not stem from savings or investment booms but rather reflects the extent of the parallel economy, estimated between 16%-18% of GDP (reaching €230 billion in 2023). A primary driver of this issue is the lost VAT for the state. Greece faces a VAT gap of 13.7% (official data from 2022), compared to 4%-7% in other European countries. To achieve convergence, an additional annual revenue of over €1 billion is needed through better tax compliance without new measures. The implementation of digital tools like myData, POS systems, electronic invoicing, and digital work cards aims to reduce this gap further. Achieving a reduction could pave the way for tax cuts starting in 2027, beyond those announced this year. For 2026 benefits, the government has secured a fiscal space of €1.5 billion, primarily intended for direct tax reductions, especially for employees. The head of the Budget Office suggests redesigning the tax scale due to two main distortions: a steep rise in the tax rate from 9% to 22% for incomes between €10,001 and €20,000, and a relatively low top tax rate of 44% for incomes exceeding €40,000. Other economic issues discussed include delays in public investment programs, challenges in attracting private investments due to judicial inefficiencies, and the need for more infrastructure investments in energy. Household deposits have shown stagnation recently, affecting private consumption and retail trade. Despite strong machinery investments in recent years, construction and storage infrastructure investments are still lacking. Tourism, a key consumption driver, shows signs of fatigue with a slight decline in average spending per visitor despite increased arrivals. Additionally, hospital debts have risen mainly due to rebate and clawback practices in healthcare, amounting to around €300 million, expected to be covered. The inefficiencies of the public sector in making timely payments were also highlighted.