The 2020 tax package presents dilemma for gov’t and creditors

The 2020 tax package presents dilemma for gov’t and creditors

A package of tax measures for 2020, which includes the reduction of the tax-free ceiling and a series of rate reductions, will shift the burden of 2 billion euros from about 500,000 taxpayers with a personal income of 22,000 euros or more per year to about 4 million people with takings between 7,000 and 22,000 euros/year from salaries, pensions or agricultural activity.

That means that “poorer” salaried workers and pensioners will shoulder additional taxes of up to 450 euros each, while “richer” taxpayers will save more than 700 euros in income tax and the solidarity levy.

The impact of the 2020 tax package is at the focus of political parties, as the decision for its activation will need to be taken, at the latest, by November, when the 2020 budget will have to be tabled in Parliament. If general elections are held in October, as the government claims, then the issue is certain to dominate the pre-election period due to the consequences of the measures on personal incomes.

The 2020 package includes the reduction of the tax discount from 1,900 euros per year for a single taxpayer to just 1,250 euros, the reduction of the lowest tax rate from 22 percent to 20 percent, and the activation of the new set of solidarity levy rates, with the new calculation bringing down to zero the levy for incomes up to 30,000 euros/year.

Given that the budget is projected to close this year with a primary surplus of 3.5 percent of gross domestic product, it is almost certain the question will be whether the voted measures (reduction of the tax discount) and the offsetting measures (reduction of tax rate and solidarity levy) should apply simultaneously, or be scrapped in their entirety.

Scrapping the measures and counter-measures would require the green light from the country’s creditors, which would be based on the existence of additional fiscal scope of many hundreds of millions of euros (up to 2 billion euros), but this will not become evident before September. There is also no possibility for drafting a budget for next year with a primary surplus below 3.5 percent, as even if such a discussion were to take place with the eurozone, it will most likely concern the 2021 budget.

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