[Greece] New prime minister announces tax cuts and reforms

Kyriakos Mitsotakis - the new prime minister of Greece -  has announced structural reforms and tax cuts intended to rebuild credibility with investors in the wake of 8 years of recession, Financial Times reports.

Addressing an audience of businesspeople in Thessaloniki on September 7, Mr Mitsotakis said, “Greece has turned a page,” continuing, “Greece is no longer the black sheep of the EU, we’re a self-confident country now.”

The prime minister said Greece remained committed to achieving high primary budget surpluses (before debt repayments) of 3.5 per cent of gross domestic product in 2019 and 2020, as it had agreed with European creditors. His hope is that should Greece deliver on reforms, its 2021 surplus targets will be cut to 2 per cent of GDP. A reduction which would free up funds for public investment projects which were frozen during years of austerity.

Last month the government made an immediate 22 per cent cut to ENFIA - a property tax introduced during Greece’s first bailout which has been less than popular. In October a wide-ranging tax law will be brought before parliament. The prime minister said the corporate tax rate would be reduced from 28 per cent to 24 per cent in 2020 and that social security contributions would be gradually lowered by 5 per cent by 2023. At present they are among the highest in the European Union. To encourage tourism investment, VAT on new construction and capital gains tax on property sales would be suspended for three years.

During his speech, Mr Mitsotakis reportedly put the stamp of approval on the measures, many of which have been under discussion since the election. He said, “One stone at a time, we’re setting the foundations of the country’s regeneration.”

The prime minister promised to accelerate several privatisation programmes including stakes in state-owned energy and transport companies. Among the companies looking for private investors will be DEPA (the state-owned gas supply company), the Athens airport operator AIA and the electricity utility Public Power Corporation.

Miranda Xafa - a former IMF economist - said, “The government appears determined to tackle longstanding problems of red tape, overregulation, non-performing bank loans and other rigidities that impede investment and productivity growth.”

Moves to unblock an €8bn investment for redeveloping the coastal site of the former Athens international airport as a business and leisure centre have been a priority. The project was included in Greece’s final bailout agreement but stopped after infighting under the Syriza government. Mr Mitsotakis said by the end of the year the Greek and Gulf led investors would make a €300m initial payment.

The redevelopment would create 10,000 jobs during the construction phase and employ up to 75,000 people when completed, he said. A huge boost for the capital. The official unemployment rate in the country was 28 per cent at the height of the crisis, it has dropped to 17 per cent. For young graduates, unemployment remains high at 20 per cent. During the crisis years, more than 400,000 qualified young people left Greece to find work in other EU member states.

Projections show Greece’s economy growing by 2.2 per cent this year. EU forecasts say the growth will be led by increased tourist spending and higher exports. However, there needs to be a significant increase in the growth rate during New Democracy’s term for the country to compensate for the 25 per cent output fall which occurred over the bailout period.

Miranda Xafa cautioned that, despite recent encouraging signs, “implementing the government’s vision within Greece’s limited fiscal space will be challenging given the clouds gathering over the global economy”.