Cuts to become permanent
The government is determined to permanently institute, as of 2023, the temporary tax breaks introduced for tackling the pandemic-induced crisis. The issue will be discussed with the country’s creditors in talks starting in September.
All signs point to the abolition of the solidarity levy, which has been suspended for 2021 and 2022 for private sector incomes; it will become permanent and expand to civil servants and pensioners as of 2023. The reduction of social security contributions will also become permanent, not ruling out a further cut.
In this indirect fashion, public sector workers and pensioners will secure their first pay rise since 2009, after 14 years, during which salaries and pensions did not just freeze, but shrank considerably.
The two above measures have a joint cost of 2 billion euros, which will lead to the reduction of primary budget surpluses recorded in the 2022-2025 midterm fiscal plan. A top Finance Ministry official says that making those measures permanent will shave 1 percentage point off the primary surpluses of each year from 2023 to 2025.
Nevertheless he notes that the better course of the economy – an increase of the gross domestic product from 3.6% to 4.6% according to most experts – will raise the primary surplus by 0.51% percentage points per annum. This practically means that rendering the measures permanent will not have an impact on the budget and the new agreements on eurozone level expected in September. “As long as we achieve our targets, no one will tell us not to go ahead with the abolition of the solidarity levy and the maintenance of the reduced social security contributions,” notes the ministry official.
The government is also considering extending to 2023 the reduction of value-added tax introduced for the period of the pandemic. That is set to provide much-needed relief to hundreds of thousands of enterprises in specific sectors hurt from the lockdowns and the restrictions, such as food service, and the entertainment and tourism industries.