Greece is examining its tax exemptions system comprehensively for the first time, a politically sensitive undertaking that successive governments have long avoided but that European institutions are now pressing Athens to address.
Greece currently has 1,236 separate tax exemptions, deductions, special regimes and exclusions whose combined cost is estimated at €22.9 billion, roughly one third of total state tax revenues. The discussion accelerated following recent reports from the European Commission and the OECD, which sent a clear message to Athens that the current model cannot be expanded indefinitely.
The review is being driven by a convergence of pressures: the financing demands of the policy package the government is preparing for the annual Thessaloniki International Fair, where the prime minister traditionally presents the government’s economic agenda, and an increasingly stringent European fiscal framework that leaves member states with narrowing room for maneuver.
A system built over decades
The scale of the problem reflects years of political inertia. Governments consistently preferred adding new exemptions to eliminating existing ones, producing a tax code that grew steadily more complex. The cost trajectory illustrates this clearly: tax expenditures stood at around €3 billion in 2014, rose to €7.7 billion by 2017 and now approach €22.9 billion.
Each exemption carries its own social and political base. Some benefit businesses, others property owners, others investment incentives, families, farmers or residents of specific regions. For many years governments preferred adding new exceptions rather than abolishing old ones, with the result that the system became progressively more complex.
The Ministry of National Economy has begun an initial mapping of the largest tax expenditures. The logic is not immediate abolition but an assessment of effectiveness, distinguishing which tax reliefs produce real social and developmental results and which simply burden the budget without measurable benefit. That is precisely what the institutions are asking for.
What Brussels and the institutions want
Greece has managed to significantly improve its fiscal position, achieving high primary surpluses and exiting the list of countries with macroeconomic imbalances. It nonetheless retains one of the most extensive and complex systems of tax exemptions in Europe, a point flagged consistently in recent institutional reports and one that has not gone unnoticed by the economic team.
The direction from Brussels is becoming explicit. If Athens wants additional fiscal space without risking the budgetary credibility it has built in recent years, it will need to examine the cost of its tax exemptions more carefully.
The OECD is calling for the creation of additional fiscal space through the restriction of inefficient tax expenditures. The IMF has noted that certain exemptions have questionable social impact. The Commission is asking for a systematic review of cost and effectiveness. The government recognizes that this pressure is not temporary. It is connected to the new European fiscal philosophy, in which member states are being asked to finance defense, energy transition, infrastructure and social policy within much tighter expenditure limits.
The areas under scrutiny
Early discussions are focusing on several categories. Corporate income tax exemptions are under examination, as are special regimes enacted during previous crisis periods and investment incentives from earlier decades.
Capital taxation exemptions are also in the frame. According to state budget data, exemptions on capital taxation exceed €9 billion. These include primary residence exemptions, property transfers, inheritances, donations and special arrangements that have built up over time. Government sources are clear that there is no intention to intervene in measures with a strong social character, though they acknowledge that a number of exceptions could be revisited on efficiency grounds.
VAT is also part of the conversation. Greece has 75 different VAT exemptions and special arrangements costing approximately €1 billion annually. The institutions’ concern is that in some cases it is unclear whether the benefit reaches the consumer or is absorbed by the market.
The diesel problem
The European Commission’s reference to the special consumption tax on diesel fuel attracted particular attention in Athens. According to Commission data, the tax on diesel remains significantly lower than that on petrol. The issue has arisen before but returns now with greater intensity in the context of Europe’s green transition.
The government is not considering any such intervention at this time. Inflation remains elevated, energy prices are rising due to the crisis in the Middle East, and any increase in fuel taxation would have an immediate effect on transport costs and consumer prices. That does not mean the issue is closed. It remains one of the files that stays open in discussions with Brussels.
The political calculus
All of this is being discussed while the government is searching for a way to combine the institutions’ recommendations with the package of measures being planned for the Thessaloniki Fair. The government does not want to be seen cutting tax relief at the moment it is preparing new interventions in favor of households and the middle class.
For this reason, a model of gradual assessment is being considered, in which each tax expenditure would be examined separately and documented as to whether it should be retained. The logic gaining ground is that part of the resources saved could fund new interventions with a more targeted character, allowing the government to argue that it is redistributing resources rather than raising taxes.
The economic team recognizes that the debate over tax exemptions will now accompany every negotiation with European institutions, as governments are called upon to finance new priorities from a constrained resource base. For Greece, the issue carries additional weight because it is directly linked to the capacity to fund future tax relief measures.
Source: ot.gr
