BUSINESS

Cutting excessive social security contributions

EIRINI CHRYSOLORA, PROKOPIS HATZINIKOLAOU

TAGS: Finance

The government is planning to lower the amount of the maximum insurable earnings for calculating the monthly insurance contribution of employees and employers, which currently stands at 6,500 euros, alongside the reduction of the rates for social security contributions that Prime Minister Kyriakos Mitsotakis referred to on Monday.

Greece currently has one of the highest income ceilings for the imposition of social security contributions, which mostly burdens high-ranking corporate officials. The rate increased during the years of the Greek bailouts from the pre-crisis ceiling of €2,432/month.

Sources say the government wants to cut the existing limit down to half, although the final decision will depend on the fiscal margin, which is currently smaller due to the health crisis. The amount of the maximum insurable earnings (that the law sets at 10 times the basic salary of an unmarried salary worker) currently stands at 3.9 times the average salary, according to data compiled by the Organization for Economic Cooperation and Development (OECD) and is among the highest in the European Union.

“The ceiling is far above the level of €40,000 per year that is the threshold for the highest tax bracket,” notes a study by the Foundation for Economic and Industrial Research (IOBE). Consequently, the study adds, the burden on the €40,000-€80,000 income bracket from taxes and social security contributions is exceptionally high. This constitutes a counterincentive for attracting skilled and productive officials to Greek enterprises.

Based on the €6,500 ceiling, the top contributions for the main pension come to €866.45 for employers and to €433.55 for employees. Obviously the contributions above a certain level do not have the element of reciprocity for the worker; effectively it is the employees of the upper middle class paying for the pensions of the others. In any case this practice contains growth, government officials argue, and they intend to change it with interventions depending on the budget leeway.

Notably, since last December, companies have asked Finance Minister Christos Staikouras for the reduction of contributions and not for the further reduction of corporate tax rates.

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