Sixteen questions – answers for the new budget and the economy

Information note with 16 questions – answers to the budget and the economy issued by the Ministry of National Economy and Finance. It is recalled that the day before (20.11.24), the Ministry of Finance submitted the budget report for the year 2025. According to official data, Greece next year will make the fourth highest primary surplus in the European Union, reduce its overall deficit close to zero and record the fastest rate of reduction in public debt among the 27 Member States. 1. What should we expect to change in Greece on the basis of the budget? The Budget of 2025 shows that the government manages to effectively balance budgetary responsibility with economic growth. According to official data, Greece next year will make the fourth highest primary surplus in the European Union, reduce its overall deficit close to zero and record the fastest rate of reduction in public debt among the 27 Member States. The tax reduction policy applied over the last five years has yielded increased revenue, thanks to the significant growth of the economy – higher than the euro area average – and actions to combat tax evasion, the results of which are already visible. Pro-investment policy continues dynamically, with investments and exports expected to increase further in 2025. Public investment, already more than doubled in 2024 compared to 2019, will increase even more, while unemployment is projected to return to pre-crisis levels. Health spending is increasing at the same time, compared to 2019 by 74% and defence by 73%. In summary, the Budget of 2025 reflects a balanced strategy that meets national and social needs, corrects the consequences of the crisis of the previous decade and raises Greece higher. 2. In the new budget it appears that the state collected an additional 3.7 billion from taxes in 2024. How can tax revenues increase while you claim that you did not increase taxes? Indeed, tax revenues increase without increasing taxes, because the economy is growing and tax evasion is limited by interventions such as the interconnection of cash machines with POS and the implementation of myDATA adopted by the Ministry of Finance. This is the best way to increase public revenue, to be able to reduce taxes or to increase public expenditure targetedly without the negative effects on growth of tax rates. Specifically: – In 2024 tax revenues are expected to be indeed higher by 3.7 billion compared to the budget. Due to this increase: 1 billion above is VAT revenue, which is the result of reducing tax evasion and expanding electronic transactions, as both consumption and inflation do not differ significantly from what the Budget of 2024 provided for. 1 billion is also the increase in income tax revenues of natural persons due to the reduction of unemployment and the increase in wages (the revenue from the taxation of freelancers had already been included in the 2024). It is indicative that the increase in salaries in 2024 is estimated at 5.2% in 2024 versus 3.8% provided for in the Budget. In addition, ECU 1.15 billion is the increase in revenue from legal persons (corporations), which is also the result of measures to combat tax evasion, and the exceptional contribution to the refineries that were ECU 300 million. The remaining amount is basically related to increased receipts due to the growth of the economy. -In 2025, tax revenue is forecast to reach 69.2 billion on the basis of estimates of economic growth, further reduction in unemployment, increased wages, etc. No additional revenue has been provided from the further reduction of tax evasion, so any progress made here with the interventions to be implemented next year will lead to over-performance of the budget. In conclusion, in 2024 the State received an additional 1.8 billion (1 billion from VAT and 800 million from legal persons) due to the reduction of tax evasion, without increasing any tax and another 1 billion from rising wages and reducing unemployment. These are the tangible results achieved by the government on the front of tax evasion, in practice rather than in words. This achieves not only positive economic results but also social injustice, some paying more because some others are getting away. 3. By developing and combating tax evasion as you say, the Budget shows higher surpluses than the target. So why doesn’t the government have more money for social policy? First of all, let us remember that before Christmas there will be exceptional support measures for vulnerable people thanks to the overperformance of the budget. And add that there are two complementary Budgets in 2024 which, thanks to the overturning of revenue, will support more effectively public investment in growth and social cohesion. All this is for the benefit of society. We also need to remember that with this government, salaries in the public sector have fallen, pensions are rising on the basis of the GDP/inflation rule, salaries for on-calls, uniforms, student housing allowance, birth allowance etc. At the same time, tax-free for families increased, reduced and insurance contributions continue to be reduced, the EBK is further reduced for insured dwellings, permanently returned to farmers and with a new system, while tax exemption is introduced for vacant homes to be rented. In addition, the main reason why the government has requested and the European Commission has accepted an increase in expenditure of 2025 by a higher percentage (37%) than in the original directions is precisely over-performance of the budget. If there were no positive results in tax evasion and development this year, the funds available for 2025 would be less and, respectively, less social benefits. All this is done in keeping with the budgetary objectives associated with the annual increase in primary expenditure. Increasing employment, wages and living standards is not possible without a healthy budget, especially in a country that continues, despite its great decline, to have the highest public debt in the European Union. 4. You tell us that by dealing with tax evasion you will reduce taxes. But for employees, pensioners and, in general, consistent taxpayers, taxation has not been reduced despite increased revenue from the reduction of tax evasion. The government has already moved on to significant tax cuts that boost citizens’ incomes and will continue on the same road as ensuring growth with social justice. An indicative reduction in the import tax rate from 22% to 9%, which is even more beneficial to the poorest. The reduction in income tax is also mentioned especially for families with children, the reduction of the ESF and insurance contributions, the abolition of the solidarity insurance contribution for pensioners. We reduced 50 taxes during our first term, another 10 in the first year after the elections in 2023 and proceed in 2025 to a further 12 taxes. Moreover, according to Eurostat official figures, Greece in 2023 had the largest GDP reduction among the ’27’ as the percentage of GDP taxes fell from 42.8% in 2022 to 40.7% in 2023. By applying the right mix of policies, the government has managed to have more revenue, with lower taxes. 5. What are the wage increases to be applied by the end of the year and 2025? The following remuneration increases are foreseen for 2025: Increase in pensions by 2.4%. Horizontal increase in public wages so that the introductor does not fall below the minimum wage level. Incentive to attract doctors to troubled and barren areas. An increase of 20% in compensation for the night uniforms (police, fire department, port, armed forces). Increase student housing allowance for regional universities. Increase in student military school salaries. In addition, the following aid will be granted in December 2024: Extraordinary financial aid to pensioners with a personal difference of EUR 100 to EUR 200. An additional dose to the child allowance beneficiaries of OPECA. Support EUR 200 for beneficiaries of e-EFCA disability benefits. Aid of EUR 200 for beneficiaries of a disability allowance. Support EUR 200 for uninsured seniors. In addition 50% of the monthly allowance to the beneficiaries of the minimum guaranteed income. 6. And what taxes will be reduced next year? The 12 tax reductions in 2025 are as follows: 1% reduction in insurance contributions from 1/1/2025. Abolition of the profession fee for freelancers. Permanentisation of the EIC’s return to agricultural oil. Income tax exemption for vacant properties to be rented. VAT exemption for new buildings (expansion in 2025). Remove a fixed telephone fee for fiber-optic connections. Exemption from insurance tax (15%) health contracts for children up to 18 years old. Tax exemption for voluntary benefits for young parents. A 20% reduction for housing insured for natural disasters. Self-taxing NSO doctors’ on-calls at a rate of 22%. Merger and acquisition incentives. Reduction of stamp taxes in a number of transactions. 7. How is the pro-development policy that you say you apply combined with the high surpluses combined? Since tight fiscal policy limits growth. The government applies the appropriate policy mix that combines budgetary prudence with development. And this is proven by evidence: Greece has much higher growth rates than the EU and the eurozone (2.3% in 2023, 2.2% in 2024 and 2.3% in 2025 at a corresponding rate of 0.4 %, 0.9% and 1.5% for the EU). At the same time, Greece will have the fourth highest primary surplus across the European Union in 2025, a total deficit that will reach zero and the fastest rates of reduction in public debt in all 27 EU member states. Which is very important in times of international turbulence. We have strong budgetary performance because we achieve, with less taxes, more revenue by reducing tax evasion and at the same time achieving higher growth rates than the EU. 8. What are the interventions for Health and Education in the Budget of 2025? In Health in 2025 expenditure will be increased by 74% compared to 2019. The increase is the largest compared to all other ministries. Especially hospital spending will be increased by 120% compared to 2019. In this direction resources were used to limit tax evasion. At the same time, there is an increase in the expenditure of the Public Investment Programme and the Recovery Fund by 285 million in order to speed up the renovation of hospitals and health centres, as well as the necessary appropriations to cover the loss of revenue of EOPY from the reduction by one unit of health insurance contributions. For the Ministry of Education the regular budget is increased by 141 million compared to the Budget 2024, the Public Investment Programme outside the Recovery Fund is increased by 115 million compared to the Budget 2024. The Recovery Fund had increased absorption in 2024 (305 million) and is expected to absorb another 202 million in 2025. 9. What is the cost for the equipment projects implemented by the government? Resolution of the state’s finances allows national needs to be met, such as strengthening equipment programmes. Natural pickups – as the reception of the Belharra frigates is expected – are expected to increase by 746 million in 2025 and to be 1,641 billion compared to 896 million in 2024. Overall Defence expenditure in 2025 will be increased by 73% compared to 2019. The second largest increase in the budget following the increase in health expenditure. It is practical evidence that the government supports the Armed Forces and shields Greece from any initiative. 10. What you answer to those who argue that wage increases are faded from accuracy. Why don’t you go to a reduction in VAT so that prices fall? Nobody ignores that accuracy limits the purchasing power of citizens, and that the inflation problem not only in Greece but also internationally intensified in previous years. We fully understand the citizens. But we must not overlook the following: Firstly, according to Eurostat’s official data, real GDP per capita in our country increased by 8.5% compared to 3.3% in the EU in 2019-2023. Secondly, average disposable income in the same period increased by 22.9% compared with 18% in the EU. The increase in average disposable income in Greece is much greater than the cumulative increase in prices (22.9% versus 13.1%). Thirdly, if we include 2024, the increase in wages from 2019 to 2024 for an employee receiving the minimum wage amounts to around 28%, while total dependent labour wages increased by 20%. Compared to 2019 – 2024 the cumulative increase in the general price index is estimated at 16.5%. In other words, wages have increased both to workers with minimum wages and overall by compensating for inflation increases. Also in 2025, there is forecast to be an increase in dependent labour wages by 3.4% and salaries per employee by 2.7%, i.e. at a rate higher than inflation expected to fall to 2.1%. And the European Commission for 2025 provides for an even greater increase in dependent labour wages by 4.1% and salaries per employee by 3.2%. Of all the above, it is clear that despite the inflationary shock triggered by the 2022 energy crisis, workers’ wages have increased in real terms, which is reflected in the increase in consumption, deposits and reduction of private debt. Income is boosted by permanent measures to reduce taxes and increase salaries such as those applied by the government, by increasing investment that increases the economy’s pie, and by aiding competition. Magical solutions do not exist, nor do miracles occur. But there is clearly progress. In relation to VAT, we have also pointed out that – as has been done in other countries where the measure has been implemented – it leads to a reduction in public revenue without benefiting consumers but the intermediaries in the supply chain. In these economic conditions, improving living standards is best served by reducing direct income taxation, which also the available income of workers is increasing, and is more growth-friendly due to its positive impact on investment and stimulating increased participation in the labour market. 11. One of the main causes of the crisis was the current account deficit. Is the fact that imports are still increasing faster than exports not worrying? We are very closely monitoring developments in this area. Objectively any developments are largely linked to exceptional events. 2020 was the year of coronavirus which significantly affected our tourism revenues, and the same applies (to a lesser but significant extent) for 2021. 2022 was the year of the energy crisis, which hit the current account of the entire European Union, and part of this significant cost was transferred and in 2023. According to the latest data, for the period January – August 2024 the current account deficit increased by about 1 billion compared with 2023. This development is due, on the one hand, to a decrease in the value of exports of goods due to the fall in fuel prices and to an increase (1.9%) in imports which is mainly due to the increase in imports of industrial goods and equipment (due to the increase in industrial investment and production) and less in consumer goods. On the contrary, the balance of services (tourism, transport) shows a greater surplus (16 billion in the 8 month versus 15.5 billion last year) It is recalled that from 2019 to 2024 investments in current prices have increased by 84%, which is the largest increase throughout the EU, exports in the same period have increased 44% while they have doubled as a percentage of GDP compared to 2008. Also, in 2020–2022 the share of goods in exports significantly exceeded the corresponding share of services and in 2023 the proportion was about 50–50, (while the proportion was previously 2–3). At the same time, the share of high-tech exports in all exports of goods has increased. The evidence shows that the production model is changing at a significant rate. We will continue in the same direction, aiming at high competitiveness for Greek products and services, further increase investment and even greater extroversion for our economy. 12. Why is the government rushing to repay more public debt than we are obliged to serve? For two reasons. The first is that repayment of loans reduces the interest paid every year by the Budget, i.e. taxpayers. It is recalled that interest expenditure is 3% of GDP. The second reason is that early repayment sends an international message of the resolution of public finances (at a time when many and large EU countries face excessive deficits) and strengthens, in troubled times, the confidence of markets and investors. This in turn has a positive effect on the debt costs of the Greek public, as confirmed by the positive results of all early debt repayments from 2019 onwards. It is indicative that in 2024 the Greek ten-year bond negotiates with a lower yield than the Italian and approaches the performance of the Spanish. This decrease also goes to interest rates on private sector loans, businesses and households. And smaller interest rates on lending for businesses mean more investment, greater employment and higher wages. At the same time, we must not forget the element of justice between present and future generations, which serves a proper policy of early repayment of high public debt. In any case, we remind everyone who criticises that thanks to our debt reduction strategy, but also thanks to the investment level, Greek taxpayers will pay 800m euros less in a decade’s depth for what the country borrowed in 2024, 13. However, debt remains the highest in the EU. Our country has achieved the fastest reduction in public debt ever recorded in the history of the eurozone, which is due to economic growth and prudent fiscal policy. The ratio of government debt to GDP was 209.4% of GDP in 2020 and is projected to decrease this year (2024) to 154%, and 2025 to 147.5%. We are talking about a 61.9% reduction in GDP over five years. It is not hidden nor is it news that high public debt was a structural problem for our country over time and certainly debt remains high on the basis of European data. At the same time we must not overlook progress in recent years, which also has a significant contribution to the growth of GDP and employment, but will continue to stop burdening the generations to come and break the vicious cycle of budgetary crises. There is no international media that does not recognize it! 14. While investments are increasing, they remain lower than in Europe. Does growth come from consumption again? Investment in Greece has increased significantly. From 2019 to 2024 as reported, investments in current prices have increased by 84%, which is the largest increase across the EU. In particular public investment has increased by 150% between 2019 and 2025. While in 2019 investments as a percentage of GDP were 11%, 2025 would reach 17.5% of GDP compared to 20.8% in the Eurozone. So our country’s investment gap will be limited to 3.3 percentage points while in 2019 it was over 10%! Of course we have started from a low base, and our economy still presents a significant investment gap. But we have made significant progress in covering it, and this will continue the year it comes. In 2025 investments are expected to emerge as a driving force of growth replacing private consumption, which had the largest share in previous years. In particular, the rate of investment growth is projected to be 8.4% in 2025, compared with 6.7% in 2024; Investment in equipment is expected to increase by 11,1 % and construction by 8,1 %. These are the results of the government’s pro-investment policy in conjunction with restoring confidence in the prospects of the economy that is the basis for attracting investment. 15. The latest OECD report shows that we are in the last positions at wage level. How is Bulgaria’s “paid” compatible with the government’s account of the good progress of the economy? First of all, the latest figures show that between 2019 and the first quarter of 2024 Greece has one of the largest income increases among OECD countries. In Greece real income, i.e. income after the effect of inflation has been removed, is increased, and this is also confirmed by the data published by ELSTAT and Eurostat, and is reflected in the increase in consumption, deposits and reduction of private debt. This is also evident from Greece’s classification of actual individual consumption in terms of purchasing power, where in 2023 our country stands at 79% of the European average, over six other Member States. And in this size Greece has a higher rate of growth than the European average, as between 2019-2023 it showed a cumulative change of 23.4%, compared with 19.4% of the European average. This does not mean that the gap created by the dramatic ten-year economic crisis has been filled, nor that Greece has achieved convergence. But it means that we have taken important steps and we will continue on the same road as the same prudent fiscal and investment policy is being implemented. Per capita GDP at current prices in 2024 has increased by 30% against 2019 and at constant prices (removing the effect of inflation) by 11% and this despite having two major crises: the consequences of coronavirus and the energy crisis. This is the way to convergence and in this course the government will remain. 16. However, unemployment remains at a two-digit rate. Are you satisfied? Unemployment in 2025 is predicted to decrease annually to a one-digit rate (9.7%) for the first time since 2009. Already according to ELSTAT data since June 2024 it has dropped below 10% and in September 2024 to 9.3% while in 2019 it was 17.9%. It is the biggest reduction in unemployment across the EU. During this time 500,000 new jobs were created, which (according to available data) on average are paid better than in 2019. Both firms and the State contributed to this progress by reducing insurance contributions, training programmes and employment policies. And these conditions, which are necessary for creating more and better paid jobs, have created the right economic and budgetary policy that we have consistently been pursuing over the last five years. And in the same direction we will move in 2025, and in the next few years.