ECONOMY

Reduction of contributions by 2 points is set to come earlier

reduction-of-contributions-by-2-points-is-set-to-come-earlier

The government is said to be pondering a further social security contribution reduction by about 2 percentage points, against an original plan for 1.09 percentage points in 2020, along with a delay to the reduction of the corporate tax rate from 24 to 20 percent, ahead of the submission of the midterm fiscal plan for 2021-2024 in April.

The speedier cut of social security contributions will be among the measures included in the midterm plan provided the necessary fiscal space can be secured. The reason the government is considering such a move is that it will benefit all enterprises – and not just those making profits – and will also favor salaried labor, which is something it wants to encourage.

The initial plan had provided for a total reduction of contributions by 5 percentage points through 2023, starting with a 0.9-percentage point reduction in the second half of this year. The overall cost of the measure would come to 1.35 billion euros, with 565 million concerning the first couple of years. The reduction of corporate tax from 24 to 20 percent would set the budget back by 540 million euros.

Finance Ministry sources say it is the businesspeople themselves who have said that they prefer the reduction of social security contributions to income tax cuts. After all, the same sources add, if the country’s creditors eventually accept the reduction of the corporate tax deposit by 30 percent, as the government has proposed, the tax break will be sufficient for businesses.

The midterm plan will be submitted with at least two alternative scenarios, ministry sources say: A baseline scenario that will provide for a primary surplus of 3.5 percent of gross domestic product through 2022 and at least one alternative scenario with the target dropping to 2.6 percent of GDP for 2021 and 2022. The 2.6 percent target constitutes the so-called medium-term target that Greece would have to stick to even without the commitment for 3.5 percent, according to the stability pact’s rules.

The midterm plan will probably be voted on without the final decisions on the fiscal space having been taken. The decision on the change of use of the SMPs and ANFAs is expected in June and will likely be favorable, according to recent statements by EU Economy Commissioner Paolo Gentiloni.

The decision on the primary surplus, meanwhile, has been put off until October.