“Primary Surplus Above €10B: Window for Tax Cuts or Fiscal Trap?”

Greece is set to close 2025 with a primary surplus exceeding €10 billion, significantly above the €8.1 billion forecast in the budget. This overperformance is not just an accounting success; it opens a fiscal window for targeted tax cuts and contribution relief, provided the new European rules are respected.

The extra surplus is driven by the general government entities:

• Social security funds are expected to rise from €1 billion in surplus in 2024 to €2 billion in 2025, thanks to higher employment and improved collection.
• Public hospitals maintain a surplus of €257 million despite pressures on the health system.
• Local governments (OTAs) reverse a €300 million deficit in 2024 to a €67 million surplus in 2025.
• Public law entities further strengthen the positive balance to €3.6 billion.

At the same time, tax revenues are already €400 million above revised targets, even before accounting for vehicle fees, income tax installments, ENFIA, and prior-year VAT receipts.

The “usable” fiscal space and political implications

This fiscal overperformance creates “usable” space that could be directed toward:

• Permanent tax reductions for businesses and households.
• Lower social contributions and income support measures.

However, the new European fiscal rules limit the annual increase in expenditures and require a clear distinction between cyclical and structural revenues. Additional revenues from combatting tax evasion and under-execution of public spending provide extra fiscal “cushion,” but political strategy will determine whether the surplus translates into lasting economic benefits or temporary, populist measures that risk future austerity cycles.

From a political lens, managing the surplus is a delicate balancing act:

• The Ministry of Finance and Prime Minister’s office negotiate the size and focus of potential tax relief.
• Opposition parties scrutinize whether the surplus funds developmental initiatives or vote-seeking handouts.

The challenge for fiscal stability

The real test is dual: maintain fiscal discipline while converting the surplus into permanent improvements in the tax base and investments that raise potential GDP. Only then will tax cuts be sustainable and not a temporary “relief” that triggers future fiscal tightening.

Thus, the management of Greece’s primary surplus is not merely an economic issue—it is a political test of how the government combines fiscal responsibility, growth, and social fairness.

Source: pagenews.gr