Greece is preparing to deploy a €1.4 billion fiscal cushion in 2026, capitalizing on robust 2024 budget performance and EU leeway for higher defense outlays, as the government eyes tax cuts to stimulate the economy and reward compliance.
According to sources from the government’s economic team, the fiscal space will be allocated primarily to targeted tax cuts for the middle class, which will be announced in September at the Thessaloniki International Fair (TIF).
A key driver of the surplus was a crackdown on tax evasion, which kept 2024 net primary expenditure below target, declining 0.3% versus a planned 2.6% rise.
Combined with moderate spending in 2025, the cumulative rise in primary spending for 2024-2025 was just 4.2%, well below the EU’s 6.3% ceiling under the new Stability Pact. That differential translates into a €2 billion reserve, though only €900 million is usable in 2026 due to annual growth caps on spending.
Greece also invoked the EU’s new “escape clause” for defense spending, projecting €500 million more in space due to rising military budgets – from 2.3% to 2.5% of GDP – as regional tensions and NATO expectations grow. The Commission has yet to finalize implementation rules, but Athens is optimistic.
The Ministry of Finance also upgraded its macro outlook. The 2024 primary surplus is now projected at 4.8% of GDP, nearly double earlier estimates. This supports a revised 2025 surplus of 3.2%, while general government accounts flip to a 0.1% surplus from a prior 0.6% deficit forecast.
Public debt is set to decline to 145.7% of GDP, aided by sustained growth and moderate inflation. The government maintained its GDP growth forecast at 2.3% for 2025 and nudged up inflation expectations to 2.4%.
Still, some caution remains. Much of the fiscal room is tied to one-off improvements, and tax collection gains must be sustained to make permanent spending changes like tax reductions viable beyond 2026.
Finance officials have left the door open for additional room by September, depending on how far anti-evasion efforts continue to outperform.
With an eye on elections in 2027, Mitsotakis’ government is poised to use fiscal flexibility to strengthen its reformist credentials and bolster households’ disposable income.