Non-salary costs in Greece are 10 percentage points above the mean rate of members of the Organization for Economic Cooperation and Development (OECD) and the European Union, according to the Bank of Greece’s intermediary monetary policy report. It also stressed that the economy has not yet returned to normal as it is has not had access to money markets in a sustainable way.
The central bank’s report showed the importance of overtaxation in Greece, presenting a case study which revealed that if income tax and social security contributions were slashed by just one percentage point, the country’s gross domestic product would grow by up to 7 billion euros up to 2021.
“The main finding of the analysis is that a permanent easing of the tax burden on labor will have a permanent positive result on economic activity,” the report that Governor Yannis Stournaras submitted on Thursday to the parliamentary speaker reads.
The tax on personal income from work and the social security contributions of a typical household amounted to 23.7 percent of its gross takings in 2017, or 39 percent of the total cost of labor, compared to 14 percent and 26.1 percent respectively for OECD countries. The analysts note that the main burden is not the income tax but the contributions of the employers and employees.
Regarding the general picture of the economy, Stournaras notes in the report that the high cost of borrowing for the Greek state illustrates that Greece has not yet returned to normal; the high state bond yields result in a high cost of borrowing for Greek enterprises and households too. The report attributes these high yields not only to the international conjuncture (mainly Italy), but also to concerns over the possibility of a reversal of the reforms agreed in the context of the bailout program.
The report estimates the growth rate this year will come to 2.1 percent, but undercuts the government’s official estimate for 2.5 percent growth for 2019, forecasting 2.3 percent instead. It sees it dropping to 2.2 percent in 2020.