The European Commission’s spring forecasts for the Greek economy on Tuesday confirmed that the suspension of a planned reduction to the tax-free threshold is on the table, though it will not be possible without sacrifice on other fronts.
Cautious wording in the spring estimates from Brussels and comments from Economic Affairs Commissioner Pierre Moscovici, made it clear on Tuesday that the scrapping of a planned reduction to the tax-free threshold, as well as the tax breaks planned for 2020 and the additional handouts announced by the government Tuesday will be the object of negotiations with creditors. With European elections on the near horizon, the timing is less than auspicious.
The Commission’s document referred to the tax-free ceiling reduction in surprisingly great detail, several months before it is scheduled to go in force, and said it will be discussed in the context of the enhanced surveillance procedure.
Brussels now projects Greece’s primary budget surplus for 2020 at 3.6 percent of gross domestic product, slightly above the 3.5 percent requirement, while last fall (when the threshold reduction and the tax break package of 2020 were taken for granted) it had anticipated a 4 percent primary surplus. This reduction theoretically leaves little scope for relief measures.
Moscovici made it clear that the Commission does not agree with the constant production of excessive primary surpluses, but added that decisions concerning the overrun’s distribution through permanent measures will be taken later.
Brussels also reduced its forecast of next year’s growth rate from 2.3 percent to 2.2 percent to match the projection for this year, which has remained the same as in last fall’s forecasts. It went on to warn of risks associated with the underperformance of the Public Investments Program and the possibility that the slowdown among Greece’s eurozone partners is affecting the country’s exports.
The Commission also cited the risks from court decisions on salaries and pensions, and “policy decisions that will affect state salary costs,” in a clear reference to election handouts.