National Economy and Finance Minister Kyriakos Pierrakakis.
Tax evasion containment and defense spending will be the main fields for the creation of fiscal space for tax cuts and possibly other benefits that the government will make, perhaps starting this year and certainly in 2026.
The relevant developments – the exceeding of the tax revenue target in 2024 and the European Commission proposal to exempt the increase in defense spending from the limits of the Stability Pact – create new conditions, offering the government some fiscal breathing space, which it may need politically.
Of course, both Prime Minister Kyriakos Mitsotakis and National Economy and Finance Minister Kyriakos Pierrakakis last week conveyed the government’s intention to respect fiscal discipline and allocate any fiscal space not to benefits, but to public investments and tax breaks.
In any case, the margins are still unclear, but they are not unlimited. A possible scenario concerns an amount of around 1.5 billion euros for 2026 and €500 million for this year. However, the ministry warns that the benefits that have already been made outside the budget this year (risk allowance for uniformed officers etc) and the increased needs of the Public Investments Program are already leading to a spending overshoot. Therefore, even if there is a margin thanks to defense spending, it will be exhausted for these specific needs.
According to the “White Paper” presented last week by the Commission, member-states will have the possibility of activating an escape clause from the rules of the Stability Pact if they increase their defense spending. Therefore, if they exceed the limit for increasing their spending set in their Medium-Term Plan, they will be able to deduct the additional defense spending from the calculation of total spending. Essentially, that is interpreted as creating a margin for other spending or tax cuts. However, it remains to be clarified, as there has also been talk that no increases in other spending besides armaments would be allowed.