The Finance Ministry expects the economy to reach high growth rates in the coming years, which will expand the fiscal margin for further tax cuts, according to the Midterm Fiscal Strategy Program 2022-25 the government submitted in Parliament on Wednesday.
The fiscal policy blueprint provides for a primary budget deficit amounting to 7.1% of gross domestic product this year and 0.5% of GDP in 2022, before a return to primary surpluses in 2023 (2%), 2024 (2.8%) and 2025 (3.7%).
The extent of the margin for tax breaks will primarily depend on the new primary surplus targets to be set for Greece, based on the new rules of the European Union Stability Pact, not to be expected until after this September’s German general election.
This and next year the exemption clause will continue to apply, allowing for deficits to support the economy against the pandemic – but that will be followed by new targets; if they range around 2.2% of GDP, as the recent European Commission debt sustainability analysis projected for Greece, then there should fiscal leeway of 0.8% of GDP in 2024 and 1.5% of GDP in 2025. That means 1.65 billion euros in 2024 and €3.255 billion for 2025.
Nevertheless, if the social security contribution reduction by three percentage points and the suspension of the solidarity levy (applying to 2021 and 2022) become permanent, they will absorb about 1% of GDP from that fiscal leeway, leaving about 0.5% of GDP, or about €1 billion, for 2025.
Ministry officials note it will all depend on growth levels: The sensitivity analysis included in the blueprint shows that for every additional percentage point of growth there is a new fiscal space created amounting to 0.5% of GDP. “Any tax cuts and the extension of tax breaks depend on growth,” say ministry sources.
Minister Christos Staikouras stressed at Wednesday’s cabinet meeting that “there are significant indications of a rapid and robust recovery, stronger than originally estimated.” However, he did warn that certain risks remain, such as the uncertainties regarding health and tourism.