Greek Economic Policy Update
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One-on-One with A. Patelis & D. Koutsopoulos
As part of Capital Link’s 'Invest in Greece' Webinar series, which was hosted on September 17th, Mr. Alex Patelis , Chief Economic Adviser to the Prime Minister of Greece, and Mr. Dimitris Koutsopoulos , CEO of 德勤 Greece, discussed the country’s ongoing economic reforms. The webinar centered around the economic policies and strategic initiatives outlined by Greek Prime Minister Kyriakos Mitsotakis during the Thessaloniki International Fair (TIF). In a detailed conversation with Mr. Koutsopoulos, Mr. Patelis provided insights into Greece's fiscal strategy and key reforms, as well as their impact on various sectors of the economy.
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Highlights:
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View the replay here below:
Key Announcements from the Thessaloniki International Fair
The Thessaloniki International Fair is often seen as the kickoff of the economic calendar, with the government using the event as a platform to lay out its economic and fiscal priorities for the year ahead.
This year’s announcements amounted to 45 in total, and the overarching theme was one of stability and reform, with the government attempting to address both immediate fiscal pressures imposed by the E.U. as well as long-standing structural issues within the local economy. Although many new ideas were mentioned during the announcement, a lot of the measures aim to tackle issues that the government has been working on for the past six years.
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Social Security Contributions and Public Sector Wages
One of the most impactful measures announced by Mr. Mitsotakis during his keynote speech was the further reduction of social security contributions by 1%. This is part of a broader strategy to alleviate the tax burden on salaried workers, thereby increasing disposable income at a time when many citizens are struggling financially. As Mr. Patelis highlighted during the interview, the government has already reduced social security contributions by 5.4% since 2019, in hopes of encouraging investment and boosting economic activity.
Additionally, the long-standing wage stagnation in the public sector was addressed during TIF. Civil servants, who have not seen a pay rise since before the financial crisis in 2009, will receive a nominal wage increase in 2024, and will continue to do so in the years to come. This regulation is designed to help public sector workers manage the cost-of-living crisis which has seen price levels increase lately, by around 15%.
When it comes to pensioners, they can expect the standard adjustment, which is calculated by half of the real GDP growth rate and half of the inflation rate. As a result, overall improvement is anticipated when it comes to disposable income across several groups.
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Support for Self-Employed Workers and Farmers
Additionally, Mr. Patelis detailed the government's efforts to support self-employed individuals. The aforementioned increase in pay will also apply to sole traders and self-employed people. A recent change in the tax system for the self-employed required them to declare a minimum income based on the national minimum wage, which is €830 per month. In recognition of the increased revenue this change has generated, there are plans for abolishing the tax surcharge that self-employed taxpayers had been required to pay. This is part of a broader effort to reduce the tax burden on Greek citizens while ensuring that the tax system remains fair and sustainable.
Furthermore, the government is focusing on revitalizing the agricultural sector, with a new program directed at encouraging investment in greenhouses. This program is expected to boost productivity in local farming, helping the sector contribute more significantly to the national economy.
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Promoting a Business-Friendly Environment
Another major focus of the announcements in Thessaloniki was the creation of a more business-friendly environment within the country. One of the key initiatives is the reduction of red tape for businesses, an everlasting issue for entrepreneurs and investors. The government has committed to streamlining 15 bureaucratic processes that businesses face when interacting with the state, based on OECD recommendations.
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Further incentives for investment, particularly in technology and innovation, were also introduced. The Golden Visa residency program, previously focused on real estate investments, has been updated in order to encourage investment in startups and tech companies. The Golden Visa has been a well sought after program, as it provides full EU residency to entrepreneurs and investors interested in Greece’s economy.
Now, investors who contribute €250,000 or more to a Greek startup will qualify for a Golden Visa, a move designed to drive tech investment and innovation in the country. It is also worth mentioning that the minimum requirement for a Golden Visa when it comes to the real estate sector, has now increased to €800,000.
According to Mr. Patelis, these changes are purposeful and intent to shift the focus away from real estate and towards startups and tech investments, a move that will benefit everybody, including those who choose to relocate to Greece.
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Reforms in Housing and Demographic Challenges
When it comes to the housing market, it has been a topic of concern, particularly for renters who have seen costs skyrocket in recent years. Currently, 70% of residential properties in Greece are owned by individuals, and the remaining 30% of properties are rentals. Currently, due to the state of the market, renters are expected to dedicate a whopping 40% of their monthly income to their rent. As Greece’s population is aging and declining, household formation keeps increasing, leading to higher demand for housing. Despite all that, there are just 79,000 vacant properties in the country at the moment.
In order to face these challenges, the government has introduced a series of measures, including subsidies for renovating vacant homes and tax incentives for converting short-term rental properties, such as Airbnbs, into long-term rental units. A homeowner who chooses to convert their Airbnb into a rental property, or one that opts for renovating and subsequently renting their apartment, are currently looking at a significant tax cut, as they are not expected to pay taxes on their rental income for 3 years.
A series of temporary restrictions has also been implemented on new Airbnb properties in the center of Athens to prevent over-gentrification and the transformation of the city into a tourist-centric area. The recently initiated program “Spiti mou”, created in 2022 to help those who are now embarking on their trip up the housing ladder, particularly young couples, is expected to receive a new installment of €2 billion. This sum will be distributed to approximately 20,000 beneficiaries who will be able to purchase their first home at a discounted interest rate between 25 and 75%, depending on their circumstances. ?As Mr. Patelis pointed out, the focus of these initiatives is to strike a balance between supporting tourism and ensuring that housing remains affordable for residents.
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Sustaining Tourism Growth
Tourism remains a cornerstone of the Greek economy, contributing significantly not only to the country’s GDP but also to employment. Beyond its reputation as a traditional vacation spot, Greece has recently started drawing visitors for religious, medical, sports, mountain, and conference tourism.
However, with the growth and diversification of this sector comes the challenge of managing overtourism in popular destinations. Mykonos and Santorini are prime examples of islands struggling to cope with the influx of visitors. One of the key measures announced predicts limiting the number of cruise ships allowed to dock on the islands, as they contribute significantly to the overcrowding problem, and introducing a per-passenger fee of up to €20 during the peak season. A cruise management system will be implemented to control the flow of visitors, ensuring that infrastructure on the islands can keep up with demand.
Another important initiative is the increase of the climate resilience tax on tourist bookings. The revenue from this measure will be allocated to improving tourism infrastructure and transportation, ensuring that the sector remains sustainable while adapting to the challenges posed by climate change. As Mr. Patelis observed, these measures are part of a broader effort to maintain the attractiveness of Greece as a tourist destination while safeguarding its environment and cultural heritage.
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New Fiscal Framework and European Economic Policy
A focal topic of the interview was the newly announced fiscal framework, which is designed to provide greater flexibility while ensuring fiscal discipline. In the past, the government had to meet specific numerical targets for its primary surplus, such as the previously known 1.5% or 2% targets. Under this new system, the focus is on a net expenditure benchmark, meaning each EU member state, has a limit on how much its government spending can grow each year, adjusted for certain cyclical factors. For Greece, this growth is capped at around 3.6% annually, excluding expenses like interest payments and unemployment benefits.
Mr. Patelis noted that certain budget items, such as pension expenditures and defense spending, are already set. This means that if Greece wants to increase spending or reduce taxes, savings must be found in other areas. One way to do this is by reforming the benefit system. The Ministry for Social Cohesion and Family is leading these changes, aiming to simplify benefits like minimum guaranteed income, housing, and child benefits. Following OECD advice, the government will apply the same income and wealth rules across all benefits to make sure only those who truly need help receive it. This decision is expected to free up funds to increase some benefits, especially since inflation has made it necessary.
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