Contributions to keep falling

Labor Ministry intends to ease non-salary costs further until 2023, implementing extra cuts

Contributions to keep falling

The Labor and Social Affairs Ministry is expected to draft a study aimed at the further reduction of social security contributions in the private sector in the context of the need to contain non-salary costs.

After reducing contributions toward the main and the auxiliary social security, which has totaled 3.9 percentage points, the intentions of the ministry’s leadership reflected in the 2021 action plan include drafting a financial study to examine two possible scenarios: the extension of the contributions reduction beyond 2021, and the possible expansion of the total reduction to five percentage points by 2023.

Besides the scheduled application of the reduction of contributions by three percentage points – leading to a total contribution rate of 36.66% instead of 40.56% – the ministry’s annual action plan for 2021 also includes the intention to cut non-salary costs, which are viewed as too high in Greece.

Reducing costs by cutting contributions, the plan says, is expected to have a favorable impact on employment, increasing incentives for hirings while reducing those for undeclared employment; this will also boost salary workers’ disposable income.

The government plan provides for an additional reduction in contributions by another 1.1 percentage points up to 2023, so that the contribution rate falls to 35.56%. That also takes for granted that the temporary reduction of contributions (by 3 percentage points) this year will be made permanent.

The government had already been planning to reduce the auxiliary pension contributions by 0.5 percentage points next year in the context of the law passed in 2016. After that is implemented, a further reduction to contributions amounting to 0.6 percentage points will be required for the total reduction rate to come to five percentage points by 2023.

In any case, it will all depend on the fiscal leeway and the strength not only of the state budget but also of the Single Social Security Entity (EFKA), given the revenue shortage due to the pandemic.

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