The new Greek Government is planning sweeping tax reforms aimed at reducing corporation and incomes taxes, cutting VAT, and streamlining incentives for investors, according to the new finance minister Mr Staikouras. There are also plans to accelerate the privatization agenda: the Government is keen to impress Brussels, with the hope of reducing the annual primary budget surplus target (currently 3.5% of GDP) that has been agreed until 2022. The full lifting of capital controls is expected to be announced next month.
Already, the Government has slashed the single property tax (ENFIA) by an average of 22% per property owner. The Mitsotakis Government has been quick to act in the labour market too, abolishing laws mandating that employers justify, in writing, the reason for firing or laying off wage-earners. Corporation tax will be cut from 28% to 24% with a second tax bill to be introduced in September, with plans to lower it further to 20% by 2021. Taxes on dividends will be reduced from 10% to 5%.
The timing is auspicious: the promises of tax cuts and deregulation arrive at a point when the economy – on some measures at least – is embarking on a meaningful recovery. The recent unemployment numbers have been promising, as the jobless rate dropped to a new cyclical low of 17.2% in May. The unemployment rate should continue to fall sharply, according to the European Commission survey for July.
Employment also increased 3.1% y/y in May, according to the Hellenic Statistical Authority. Separate Q1 figures from Eurostat (latest available) showed a 25.75k q/q gain in employment in Q1, with a big rise in manufacturing (+13.86k q/q). There was a huge jump too, however, in information & communications (+10.29k q/q).
