The “package” of tax cuts announced at the Thessaloniki International Fair and to be implemented from 2026 is expected to have a positive impact on the growth dynamics of the Greek economy, according to the Interim Monetary Policy Report of the Bank of Greece (BoG). However, the same report points out that tax interventions alone are not sufficient to address the challenges of the coming period, emphasizing that substantial and multiplier benefits for the economy can only arise through a combination of tax and broader structural reforms.
Read: Bank of Greece: Growth at 2.1% until 2027 – Warning on Recovery Fund, demographic and housing crisis
Positive impact of tax cuts on the Greek economy
According to the Bank of Greece, the tax measures announced by the government at the Thessaloniki International Fair will have a positive effect on growth in the coming years. Specifically, the reduction of non-wage labor costs is expected to strengthen incentives for businesses to create new jobs and for the working-age population to participate in the labor market.
Additionally, recent tax incentives for young workers, including tax reductions and exemptions from income tax, encourage their active participation in the labor market and help retain human capital in the country. Increased youth participation in the labor market is a basic prerequisite for further reducing unemployment rates, addressing labor shortages in various sectors such as tourism, and increasing the country’s productive capacity.
The report also states that reducing taxation on rental income increases property owners’ disposable income and may enhance transparency and declared activity in the real estate market. Regulations targeting the regions are also particularly important, as they are expected to boost local economic activity, reduce regional inequalities, and support social cohesion.
The increase in household disposable income is expected to lead to lower poverty rates, but the proportional benefit increases progressively with income level, causing marginal deterioration in inequality indicators without reversing the overall positive picture in terms of welfare.
Warning on demographics
The Bank of Greece sounds an alarm on demographics, which poses a significant fiscal risk as it affects employment, tax revenues, and the sustainability of the pension system, emphasizing the need to address it through complementary policies. As it characteristically notes, tax interventions alone are not sufficient to address future challenges.
Their effectiveness can be significantly increased if combined with a network of targeted social and development interventions, such as investments in quality and affordable childcare, the establishment of flexible working hours and forms of employment, housing support for young families, and strengthening healthcare services. Additionally, special benefits such as education allowances for children or home support during a new mother’s first steps enhance family security. The combination of relevant tax and structural interventions can yield multiplier benefits for the economy while simultaneously contributing to strengthening social cohesion.
Regarding the attraction of productive investments, it emphasizes that tax system stability, the establishment of accelerated depreciation for fixed equipment, and greater tax deductions for research and development investments can make the country more attractive for investments in industry and innovation, with positive effects on growth dynamics.
