The Pissarides committee has stressed the need to reduce the burden of taxes and social security contributions on wage labor, emphasizing in a report published yesterday that "absolute priority must be given to alleviating the burden on wage labor" and calculating that the "invisible hand" of the state keeps up to 67 percent of an employee's salary.
It is worth noting that the government, in its first policy steps last autumn, did not pay particular attention to reducing the burden on middle and higher wage earners, despite these costs having reached extreme levels: in order for an employee to receive a net salary of 1,500 euros in Greece (a low salary by European levels), the employer, ie the company, must pay 2,727 euros per month, while in Cyprus the cost for the company is 1,814 euros, or 33.5 percent lower. In order to offer a high salary, to the order of 3,000 euros per month to an executive or scientist, a Greek company must pay a total of 7,148 euros (!) to cover tax and social security expenses.
According to the calculations prepared by the Pissarides Committee, the percentage of employee salaries directed to taxes and insurance contributions starts from 31.9 percent at the lower pay scales and reaches 67 percent at the higher end, while the corresponding percentage for contract employees reaches up to 53 percent.
As highlighted in the report:
"The very high tax rates on labor (after initial levels), while there is a lag in the respective incomes, reflect the small percentage of the economically active population, high unemployment and the high rate of undeclared work. There is considerable scope and need to change the structure of taxes in order to reduce distortions and disincentives to outwardly looking entrepreneurship. Taxation needs to be made more compatible with high growth rates in the medium term, by strengthening the productive base of the economy. In particular, the tax base on income taxation remains limited, focused on wage labor, with the result that the burden of high tax rates and contributions is asymmetrically large for a small part of the population.
The excessive burden of salaried work from taxes and contributions, especially in the middle income bracket, has negative effects on competitiveness, the retention of skilled labor in the country and incentives for formal work. It reduces incentives for production, pushes workers into the grey economy or abroad, and delays the transformation of the economy.
The current marginal rates, including the solidarity levy, are very high and show very strong progressiveness already from middle incomes. High taxation discourages job creation for highly skilled workers, as well as the corresponding investments that the country needs to attract in order to achieve strong growth rates. In manufacturing, high non-wage labor costs further exacerbate the negative effects on international competitiveness from relatively high energy costs."
To facilitate the reduction of labor costs, the committee, recognizing that there is generally no large margin for tax cuts, proposes to shift the tax burden on consumption and cut unnecessary costs:
"Reforms, such as the drastic reduction of the labor tax burden, are pressing, necessary for the productive reconstruction of the country. In the transition phase, and depending on the fiscal balance, part of the gap in tax revenue reductions can be offset by cost reductions, with an emphasis on unnecessary bureaucracy, low-performing agencies, and other inefficient operations. Reducing spending requires a difficult balance because there are areas that need support, such as pre-school education, health and other important priorities."
The 11 proposals for change included in the report include: simplifying and cutting taxes, taxing incomes from different sources equally, removing obstacles that allow companies to grow, restricting the illegal trade of tobacco and oil products, introducing a carbon tax on products from nations not adopting environmental measures and targetting the grey economy.