Intent on labor cost reduction

Athens is determined to slash social security contributions further to boost the economy

Intent on labor cost reduction

The government is determined to continue along the path of tax cuts, with an emphasis on reducing the load on labor – mainly salaried employment – the chief economic adviser to the prime minister, Alex Patelis, confirmed on Thursday.

“We have opted to reduce taxation on labor and not on consumption,” Patelis told Skai Radio. He added that the government wants to support salaried labor and in this context he said a further 0.5 percentage point reduction of social security contributions is coming in 2022, on top of the three percentage point reduction this year and 0.9 points last year. He also spoke of a gradual reduction in the solidarity levy.

On Wednesday, Patelis had told a conference that when conditions allow it, there will be more interventions, such as reducing the so-called ceiling on contributions.

These statements by the PM’s adviser matter because they show the government’s intention to expand the contribution cuts and the solidarity levy suspension that so far only apply to this year and make those changes permanent.

To achieve that, Athens will need to secure the consent of Brussels. The expected extension of this year’s fiscal relaxation into 2022 offers credible hope that this would be feasible. Patelis stated on Thursday that the relaxation of the European Union rules allows the government to apply these interventions on a pilot basis and see what their actual fiscal cost is. He estimates that this cost will be below that provisionally calculated, as part of it will be offset by the positive impact on the real economy.

This intent is likely to be reflected in the stability program and the midterm fiscal plan that Athens will submit to the European Commission in April and May respectively.

A Finance Ministry source said on Wednesday that some of details of the government’s plan will form part of the above plans’ scenarios, while other details will be forwarded to the drafting of the 2022 budget in the fall.

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