As the government finalizes a new package of handouts in the countdown to local and European elections next month, European officials are skeptical about the large primary surpluses from which the benefits are to come, arguing that they are partly due to cuts to the country’s public investment program.
European officials were critical of the government’s policy mix in comments to Kathimerini, saying that authorities cannot announce budget surpluses thanks to cuts to the investment program and more taxes while failing to settle the state’s debts to third parties.
Apparently anticipating next month’s handouts, one European Union official told Kathimerini that tax cuts are necessary but should not be funded by trimming the public investment program.
The handouts, which were discussed by Prime Minister Alexis Tsipras and Finance Minister Euclid Tsakalotos yesterday, are expected to be announced shortly after the Easter break.
They include some measures of a permanent nature, chiefly tax cuts, and other one-off benefits, one source said. One measure being considered is reinstating a discount for taxpayers who pay their income tax in a lump sum rather than installments.
In any case, enforcing all the measures currently being discussed would not be possible as their total cost is in excess of 5.5 billion euros, with the fiscal burden for this year alone estimated at 1 billion euros.
The permanent measures that have been mooted basically amount to a large tax relief package. They include the trimming of the lowest income tax rate from 22 to 20 percent, a decrease in the highest value-added tax rate to 23 percent from 24 percent, the relocation of several food staples including sugar and coffee from the high VAT rate to 13 percent, and not proceeding with a planned reduction to the tax-free threshold next year.
Greece’s primary surplus, and its policy mix, are expected to be discussed at a Euro Working Group scheduled for May 2. According to sources, Greek officials aim to convince creditors that there is fiscal space for 900 million euros in handouts.