The final touches are being put these days on the package of tax cuts and social interventions that Prime Minister Kyriakos Mitsotakis will announce from the podium of the 89th Thessaloniki International Fair. A package that will be close to €2 billion and is designed to target primarily the middle class, families with children, but also wider social groups trapped in the housing crisis and the high cost of living. For the first time in years, the message is clear: the “cast-offs” of the past decade are coming to the fore.

After a decade of constant burdens that hit wage earners, young couples and family heads, the government is attempting to send the message that the “backbone” of society will no longer be the permanent loser. The tax relief, changes to the scales, higher tax-free thresholds, housing incentives and reduction of presumptions promise to leave more income in the pockets of millions of households, while creating a new basis of trust between the citizen and the state.

The middle class, the retired, the retired and the freelancers who for years have found themselves trapped in the vise of overtaxation and presumptions are the big beneficiaries of the package. The choice is no accident: the remainder of 2025 and 2026 are pivotal, as it will become clear whether the government can turn the game around on the level of income and everyday life.

Tax changes

Changes to income tax are the “heart” of the package. The prevailing scenario calls for an increase in the basic tax-free threshold from €8,632 to €10,000 for employees, pensioners and professional farmers. For the self-employed, the first income bracket remains at 10,000 euros, with a 9% tax rate from the first euro. At the same time, the additional tax-free thresholds for dependent children are increased from 1,000 to 1,500 or even 2,000 euros, giving families with children a breathing space. A couple with two children and an income of 20,000 euros, currently taxed on 18,000 euros, will be taxed on 16,000 or less under the new regime, resulting in a relief of 500 to 700 euros a year.

Changes are also coming to the costs. The income bracket of €10,000 to €16,000, currently taxed at 22%, will drop to 18%. For an employee with an income of 12,000 euros, this means a tax cut of about 400 euros a year. On higher incomes, from €40,000 to €50,000, the rate drops down from the current 44% to 42%, in an effort to support the middle and upper classes who bear the biggest burden of income tax. A worker with an income of 45,000 euros will see his or her tax cut by 800 to 1,000 euros, creating a sense of fairness for these incomes as well.

Reduced withholding from January

The new tax deductions will take effect from 2026. The benefit will be felt immediately, as employees and pensioners will see reduced tax withholding from January earnings, while the self-employed, farmers and property owners will see relief through the tax returns they receive for 2025 earnings. In fact, for employees and pensioners, the benefit will be twofold, since in addition to the reduction in withholdings in 2026, they will also receive tax refunds for 2025, as the withholdings made this year were calculated using the old scale, which has higher rates than those used for the final settlement.

Of particular importance are the changes to living allowances. Their 30% reduction means that more than 1.2 million taxpayers caught in the over-taxation trap each year will see real relief. Currently, a pensioner with an income of €9,000 and an owner-occupied house can be taxed on a presumed income of €12,000 and pay tax as if they had more. Under the new regime, the presumption for the house is reduced, the final income is reduced and the tax may even be halved. In many cases, the presumptive tax will be zero, especially for low-income and low-retired people.

The measure also applies to households owning cars, boats or swimming pools, where the presumption will be reduced accordingly, resulting in a significant decimalization of taxable income. In practice, the new system will bring imputed income closer to actual income, closing a decades-old injustice.

Real estate

On the real estate front, the government aims to incentivize long-term leases. The 15% tax rate for the first 12,000 euros is reduced to 5% or 7% for the first 5,000 euros. This means that a landlord who rents his house for 400 euros a month, with an annual income of 4,800 euros, will see his tax drop from 720 euros to 240 euros – a benefit of 480 euros a year. The aim is to open up thousands of closed apartments and return them to the market with lower rents. For short-term leases, the framework remains the same to strengthen the incentive to transfer homes to long-term leases.

The housing crisis is the biggest thorn in the side of the middle class. The “My House III” program brings low-interest loans with more flexible terms for young couples, while “social consideration” is on track for implementation. The first international competition will bring thousands of new low-rent homes to the market in ten major urban centres. Homes that will be rented 30% cheaper than current prices promise to create overall market pressure and hold down rents.

At the same time, the extension of the VAT freeze on construction is expected to be announced for 2026, a measure that gives a breathing space to the property market and supports construction activity. Maintaining the incentive is deemed necessary as prices remain high and demand is limited, while thousands of households are still struggling to acquire housing.

Support for pensioners

The package also includes pensioners: improvements are also being considered to the 250 euro annual allowance for low-income pensioners, with scenarios calling for either an increase in the amount or an expansion of the number of beneficiaries. Combined with changes to the personal allowance, which is set to be reduced by 50% or phased out, thousands of pensioners will see a real increase in their income after years of stagnation.

In the public sector, a new 35-40 euro gross increase is planned from April 2026, while in the Armed Forces, a new pay scale is coming that is estimated to yield up to half a salary extra per year. The minimum wage in the private sector will reach close to €920, automatically increasing pay for over 1 million workers.

In 2026 (instead of 2027), a new reduction in social security contributions is planned, which will be at least 0.5 points and will further ease non-wage costs for businesses.

However, the actual amount of the new benefits is estimated to be significantly higher, exceeding 2 or even 2.5 billion euros in total, as the economic staff plans, as it did this year, a second package of measures next April. But this will only be locked in after the landscape for the growth path and the 2025 primary surplus has been clarified, with the “bull’s eye” of Eurostat, so that there is the necessary fiscal space for new interventions.