The increase in state revenues in recent years has been impressive, mainly as a result of accuracy, the acceleration of tax collections, as well as measures implemented to strengthen the state's collection capacity. However, the upward trend in tax revenues is not expected to continue in the long term, which should ring as a bell to the Government, given the increase in government spending.
The Fiscal Council, in its interim report, which was published the day before yesterday with a reference date of July 2025, refers extensively to the issue of state revenues, warning that the state may find itself trapped in a situation where these revenues will decrease, as predicted, while at the same time state expenditures and in particular inflexible expenditures will increase. Which, it is underlined, will be more difficult to reduce.
Fight against tax evasion and the GHS
More specifically, the Fiscal Council notes in its report that a number of factors contributed to the strong growth rate of revenues, the main one being the combination of inflation and growth.
Growth in employment and nominal wages have also contributed significantly. The clearance of tax arrears by the Tax Department has also accelerated the growth rate of government revenues. In this regard, tax revenues recorded a significant acceleration due to tax collections from previous years, both in 2023 and 2024.
Tax revenues are expected to remain at slightly higher levels than historical, as in addition to nominal GDP growth, specific measures have reduced tax evasion. These include the general improvement of the Tax Department itself, the gradual maturation of the GHS and the expansion of the use of credit and debit cards at points of sale. However, despite the expected stabilisation at higher levels, revenue growth rates are expected to normalise over the medium term.
Decrease in growth rate
The Fiscal Council warns of the normalization of the growth rate of the Republic's tax revenues, which is reflected both in the 2025 Budget and the 2025-2027 Budget, as well as in the other official documents of the Ministry of Finance.
Characteristically, in the 2025 Strategic Fiscal Policy Framework (SAPF), it is expected that, from 8.7% in 2024, the growth rate of government revenues will be limited to 2.6% in 2027, with a slight acceleration to 4% in 2028.
For this year, the estimate speaks of an increase of 7%. Despite the fact that for the first five months the increase moved to 8.8%, the Fiscal Council estimates that by the end of the year the result will be close to the estimates of the Ministry of Finance, notes the Fiscal Council.
On the one hand, the de-escalation of revenue growth rates and on the other hand the increase in total government expenditure reflect two phenomena that should be tackled in the medium term:
First, tax revenues normalize and "return" closer to average increases, as the peculiar conditions that led to up to double-digit growth rates are completed, while the base effects are also working. Second, the state is gradually becoming more expansive on the economy, absorbing more of the added value created by the economy, burdening private investment and creating distortions in the economy and private disposable income.
Fiscal: They are going to inflexible government spending
The Fiscal Council is sounding the alarm about the fact that most of these increases in revenues are dedicated to inflexible expenditures of the Republic. This, it points out, should be a concern because, while the expected growth rates in government revenues are normalizing, it will not be equally easy to adjust expenditures. In other words, the executive power may be trapped in pro-cyclical fiscal practices. which are contrary to prudent management, but also problematic for the economy.
In particular, in relation to government spending, it is noted that it continues to grow faster than nominal GDP, which translates into state expansionism that will require tax increases or even a faster expansion of the Central Government's liabilities against the Social Insurance Fund, which currently reach €12.5 billion and approach 40% of GDP.
The fact that expenditure is growing faster, both in nominal GDP and in medium-term revenues, leads to the development of a significant imbalance in the budget, which remains hidden behind temporary increases in revenue, and the correction of which should be considered as a top budgetary priority.
At the same time, the identified imbalance jeopardises the debt targets in the medium term, which are expected to be achieved in 2025, but their achievement may be temporary. Taking into account the high implementation risk in expenditure reductions, the issue deserves special attention.
