The government will consider expanding to civil servants and pensioners the tax breaks implemented this year in the private sector, i.e. the reduction of social security contributions by three percentage points and the solidarity levy suspension. This will probably happen in the fall, depending on the fiscal leeway, ahead of the 2022 budget, according to government sources.
This reduction is a possible next step in the direction of tax cuts the government sees as essential in promoting equality between taxpayers. However, its fiscal cost and the country’s needs as it emerges from the pandemic will determine the final decision.
The Finance Ministry is focused right now on where the resources will come from to fund support measures against the pandemic and prevent company shutdowns, postponing structural interventions for later.
Therefore, the stability program the government will submit at the end of April and the midterm fiscal plan to follow in end-May will be relatively short on new measures, according to ministry sources. “We will not show our hand just yet regarding the utilization of the fiscal space. We wish to reveal our program at the right time politically,” they say, stressing that this does not point to early elections. The submission of the draft budget in the fall allows ample time for assessing conditions.
The primary objective in any case is to at least extend into 2022 the suspension of the solidarity levy and the contribution reduction for the private sector on a temporary basis, as is the case this year. The ministry clearly says that it will seek the approval of the eurozone for that extension, provided that the fiscal relaxation rules will also apply for 2022.
The fiscal cost of the contribution cut and the levy suspension this year has been estimated at about 1.6 billion euros, per this year’s budget, a far from negligible amount in a period of fiscal pressure. Nevertheless, the government hopes that the actual cost will prove to be lower, facilitating its continuation and possibly its expansion.
“Until the pandemic ends and new primary surplus targets are set, no permanent measures can be discussed,” the ministry sources say.