Mitsotakis Government / Post-election scissors in allowances and tax exemptions

In the midst of widespread accuracy and reduced real incomes, the issue of cutting 1,064 tax exemptions is open, and even through the slope. The issue was brought up once again by the governor of the Bank of Greece, Giannis Stournaras, in the report of the central bank, which was made public a few days ago. And indeed in a year when the government’s decisions on tax burdens for more than half a million freelancers are implemented. At the same time, the Cabinet of Ministers raises an issue in relation to social benefits, when both Mr. Stournaras and the Minister of National Economy and Finance Kostis Hatzidakis spoke of fiscal prudence from 2025, when the new fiscal rules will be implemented. There are many analysts who see a new economic agenda unfolding in the next period of time and certainly after the elections. After all, it has already been announced by Mr. Hatzidakis that the social dividend will be stopped, as well as all kinds of passes to support the economically weaker classes.

Neither more nor less, the governor of the Bank of Greece, Giannis Stournaras, recommends to the government, in his report on the Greek economy, a re-evaluation of all tax exemptions and a change in the criteria for the provision of social benefits. It is not the first time that the central banker criticizes the specific regime of tax exemptions but also the criteria for granting social benefits in our country, asking for their review with the aim of directing them to those who really need them. However, both the timing and the fact that from next year there will be a “ceiling” on government spending are of great importance.

This time he was in favor of broadening the tax base by re-evaluating the existing tax exemptions, given that both their number and cost have increased significantly in recent years. It is characteristic that, according to the budget, the amount of tax exemptions has risen to 15.5 billion euros in 2023 and their number to 1,064 from 1,047. In recent years, due to the pandemic and the energy crisis, 245 new arrangements have been added to the list of exemptions and reductions, with the total cost to the budget increasing from €8.96 billion in September 2019 to €15.55 billion. euro in September 2023.

Tax breaks today

In personal income tax there are 239 exemptions and deductions, costing €5.396 billion, with the largest amount of €3.85 billion coming from the tax-free threshold for employees, pensioners and farmers. In the corporate income tax, 206 exemptions and discounts are applied, amounting to 1.846 billion euros, with 48,248 companies benefiting. In capital taxation, 87 deductions and exemptions are recorded in ENFIA, in the Special Property Tax, in transfers, parental benefits, inheritances and donations, amounting to 5.514 billion euros. According to the BoE report, a new assessment, with increased controls on the use of special deductions, would strengthen tax fairness, while at the same time it could lead to an increase in tax revenues. In this way, tax policy can be developmentally oriented, while distributing the tax burden more fairly and proportionally.

The issue of allowances

According to the report of the Bank of Greece, with regard to social benefits, it is deemed necessary to establish careful selection criteria in addition to tax declarations. Better targeting of social spending, as in economies, such as the Greek one, in which there is widespread concealment of incomes, other criteria should be taken into account besides tax declarations.

The common practice of awarding benefits based only on declared incomes in an economy with increased tax evasion leads to an irrational and unfair use of public resources. This can be seen from the fact that the fiscal multiplier of social spending in Greece is low, which suggests that this spending is spread across wider income strata and does not end up targeted at the lower echelons of the income distribution.

The report recommends an increase in the incentive package to encourage the use of electronic means of payment, as the ongoing measures to strengthen the technological arsenal of tax authorities help to limit tax evasion and therefore improve the ability to target benefits. At the same time, it is stated that the reduction or subsidization of insurance contributions will lead to the strengthening of the competitiveness of Greek businesses and the preservation of jobs after the increase in wage costs.