The government will have to secure the necessary fiscal space it needs to introduce the tax cuts it is planning for next year, after deciding to stick to the target for a primary surplus of 3.5 percent of gross domestic product (GDP), a Finance Ministry source admitted on Tuesday. The unnamed official spoke to Kathimerini on the sidelines of the Economist conference in eastern Attica, where representatives of Greece’s creditors stressed that any change in the target is not up for discussion at present.
The creditors’ mission chiefs in Athens praised the government for prioritizing growth, saying they its reform objectives appear “promising.” However, the question is how Athens plans to secure the fiscal space needed to implement the first step in its growth agenda: tax cuts.
European Stability Mechanism chief Klaus Regling’s answer has caused some concern: “A reduction in tax rates could be coupled with an expansion of the tax base,” he said, pointing to the reduction of the tax-free threshold. An expanded tax base was also discussed by the head of the International Monetary Fund’s mission to Greece, Peter Dolman, as this has been one of the Fund’s fixed position. Regling also said in case there is a fiscal margin it should be used for productive spending such as public investments.
A senior Finance Ministry official argued that repeated references to the planned tax cuts by Regling were encouraging, adding that the government is “doing well by taking things one step at a time.”
European Commission mission chief Declan Costello said that reducing the primary surplus target will be “very difficult politically,” going on to raise some eyebrows when he noted that the government could make better use of the resources in the Public Investments Program and spend 13 billion euros from the cash buffer to boost the real economy.
A discussion on the reduction of budget targets could be held, said ESM mission chief Nicola Giammarioli, but the most pressing question right now is how growth can be strengthened within the context of the existing target.
Speaking at the event, Finance Minister Christos Staikouras announced changes to the tax debt repayment framework with a reduction to the minimum monthly tranche and the easing of eligibility criteria.