The European Commission proposal for extending fiscal flexibility into 2022 opens the way for the maintenance, at least for next year, of the temporary measures in the 2021 budget, i.e. the reduced social security contributions and the suspension of the social solidarity levy.
This is the estimate of senior Finance Ministry officials, who argue that if the Commission proposal is ratified, as expected, the extension of the temporary measures is a strong possibility. However it is stressed that the measures will continue to have a temporary character, as is the flexibility being granted.
The ministry intends to take cautious steps. Officials believe it is still early for any decisions, given that neither the European rules have been confirmed yet nor is the post-pandemic landscape clear at all. They also take into account the market turbulence and note that the government does not want to jeopardize the country’s borrowing conditions, presenting a deficit that would worry the markets.
The contribution reduction by three percentage points bears an annual cost of 816 million euros for the budget: This concerns the contributions of employees in the private sector that are paid by the employers. As for the suspension of the solidarity levy, that has a budget cost of €767 million for 2021.
With regards to the corporate income tax deposit reduction, which also applied last year on a temporary basis, the ministry is against repeating it this year given the pressure the budget has already come under. That measure cost the 2020 budget €1.6 billion. This year’s budget does not allow for any additional burdens given that successive lockdowns have caused expenditures to swell dangerously – unless things change considerably over the next few months.
The ministry is concerned now about the 2021 budget and not that of next year, as it is striving to strike a delicate balance between the need to support the economic recovery and steering clear of any dangerous fiscal paths. This is not easy given that the support measures’ bill has risen from the original €7.5 billion included in the budget to a total of €11.6 billion, according to the latest Commission report, on the ninth post-bailout assessment, which Minister Christos Staikouras also confirmed.