ECONOMY

Reduction of the basic tax rate to 9 pct to cost up to 900 mln euros

reduction-of-the-basic-tax-rate-to-9-pct-to-cost-up-to-900-mln-euros

The government’s pledge to reduce the minimum income tax rate from 22 to 9 percent for the first 10,000 euros declared will have a fiscal cost of at least 800-900 million euros per year.

This is a particularly high price tag for one single cut as a result of the large number of taxpayers that stand to benefit, even without any of the other changes to tax rates being planned by New Democracy, which also intends to shave 2-3 percentage points off the other income rates (of 29, 39 and 45 percent).

Under the new rates, salaried workers and pensioners with personal incomes of over 9,000 euros per year will pocket up to 180 euros more, while all self-employed professionals will also benefit without exception, being better off by up to 1,300 euros on an annual basis.

That cost of 800-900 million euros will come on top of some 2 billion euros from the non-reduction of the tax-free threshold, not to mention another promise to reduce the so-called “solidarity tax” or the effects from any other interventions to income tax rates.

The introduction of the 9 percent rate will benefit all self-employed professionals, as they will save 130 euros in taxes for every 1,000 euros of declared income up to the level of 10,000 euros. Therefore, a professional with earnings of 2,000 euros per year will save 260 euros and one with an income of 5,000 euros will save 650 euros in tax. The maximum benefit of 1,300 euros will come to those earning (or declaring, at least) 10,000 euros or more per year. The fiscal cost of the reduction for the self-employed alone is projected to exceed 260 million euros.

For salaried workers, pensioners and farmers savings could come to as much as 180 euros provided their personal income exceeds 8,500-9,000 euros per year, as the lower incomes do not exceed the tax-free threshold. However, the number of taxpayers eligible to benefit from the tax cut is huge, estimated at over 2.8 million. Therefore, the budget cost from this intervention is expected to top 500 million euros.

As far as farmers in particular are concerned, the number who stand to benefit from this tax cut is very small, as only a small percentage of farmers declare annual incomes in excess of 8,000 euros per year.