More income is gradually pushed into higher tax bands, even though workers' real purchasing power is unchanged.
Greece's government has unveiled a sweeping tax relief package, set to take effect for 2026 incomes, which it says will benefit more than four million taxpayers. The plan lowers income tax rates across the board and is presented as a permanent boost to household finances. But experts warn the gains may prove far less durable than promised.
The reason lies in a technical but critical omission: the income tax brackets will not be indexed to inflation. While salaries typically rise over time in nominal terms to keep up with the cost of living, the brackets themselves remain frozen at fixed levels. The result is that more income is gradually pushed into higher tax bands, even though workers' real purchasing power is unchanged. Economists call this phenomenon "fiscal drag" — a stealth increase in the effective tax burden without any official change in rates.
For example, a single worker earning €30,000 a year may initially save around €400 under the new system. But if their income rises by 3% annually in line with inflation, after five years their salary will have climbed to nearly €35,000. That extra income falls into a higher bracket, leaving the worker with a higher nominal tax bill. The €400 relief remains on paper, but in real terms it is worth only about €345 after five years and close to €300 after a decade.
The same logic applies to families, who are among the biggest beneficiaries of the reform. A household with two children and €30,000 in income will save around €1,200 annually once the new brackets are in place. Yet, adjusted for inflation, the real value of that relief falls to just over €1,000 within five years and drops below €900 in ten. Families with three or four children, who see the steepest nominal tax cuts at the outset, also watch their gains eroded year after year.
Even young workers, who under the new law will pay no income tax until the age of 25, face the same problem once they move into the regular tax scale. Their pay rises may do little more than match inflation, yet without bracket indexation, a growing share of their salary will be taxed at higher rates.
The 2026 tax reform undeniably delivers relief. For the first time in years, Greek households will see a permanent reduction in their income tax burden, with visible gains in take-home pay. But without automatic adjustments of the tax brackets to reflect rising prices, inflation will steadily eat away at those benefits. Unless the government introduces indexation, the package will offer taxpayers less and less real value over time, even as it continues to provide nominal savings on paper.
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