Tax discount is slashed for all
Proposed horizontal increase of obligations will mainly hurt those on lower incomes, starting from 2020
The yearly tax discount will be reduced by 650 euros as of 2020, according to a draft agreement submitted to the government by the European Commission and the International Monetary Fund.
If the cuts to the so-called personal difference in pensions – i.e. the leveling down of all pensions, old and new, to the amount calculated by last year’s legislation – do not fetch the anticipated savings for 2019, the reduction of the tax discount will be partially implemented from 2019 to cover the fiscal gap created.
The 650-euro cut to the discount will be across the board, according to the draft agreement, meaning it will apply to all taxpayers regardless of family status. Therefore, for an unmarried taxpayer, the tax discount will drop from 1,900 euros today to 1,250 euros, which means the taxfree threshold will sink from 8,636 to 5,685 euros. Taxpayers with three or more children will see their discount shrink from 2,100 to 1,450 euros and their tax-free threshold from 9,545 to 6,595 euros.
The measure will weigh particularly heavily on those on lower incomes up to 10,000 euros per year, who today pay no income tax at all. The blow will be somewhat softened, mainly for people on incomes of above 15,000-20,000 euros, if the socalled countermeasures are implemented as they would include the drop of the basic income tax rate from 22 percent to 20 percent and of the lowest solidarity levy rate. However, the countermeasures will only be activated after the implementation of the tax discount drop and in case the 2020 primary surplus exceeds 3.5 percent of gross domestic product.
The proposed reduction to the in- 1.0893 come tax discount as well as the cuts to pensions that will apply from 2019 have already been agreed by the government and the country’s creditors and no substantial changes are anticipated in the context of the negotiations. Yesterday the government sent its feedback on the draft agreement documents to the Commission and the IMF and is awaiting a response. The feedback mostly concerns the timetables and not the essence of the measures.