State Budget Office: Targeted Tax Rate Reductions and Lower Insurance Contributions

The State Budget Office has proposed targeted reductions in tax rates for wage labor and lower insurance contributions for both employees and businesses. Presented to Parliament, this initiative aims to utilize fiscal space effectively and proceed swiftly. During the quarterly report presentation for March 2025, coordinator Ioannis Tsoukalas addressed numerous inquiries from lawmakers regarding surpluses, fiscal space, economic policy mix, wages, GDP per capita, and what lies ahead post-Recovery Fund financing. Regarding GDP per capita, Tsoukalas highlighted estimates suggesting it could take seven to ten years for Greece to approach pre-crisis income levels, which still lag significantly behind the Eurozone average. The surpluses were attributed to improved tax base discovery, economic growth, and cost reductions. Tax rates for individuals and businesses have remained stable or decreased since 2020. The office emphasized the need to use fiscal space to reduce tax burdens on wage labor and insurance contributions, particularly benefiting younger workers. Notably, distortions in individual taxation create disincentives for skilled labor returning to Greece due to high tax brackets starting at relatively low income levels. Post-Recovery Fund, forecasts indicate a slowdown in economic growth between 1% and 1.5% from 2027 onward. To maintain debt reduction momentum, higher primary surpluses will be necessary. Additionally, developing sectors like manufacturing and defense industries is crucial for diversifying Greece’s economy beyond tourism and shipping.