Greek PM to unveil tax breaks as popularity dips

By Angeliki Koutantou and Renee Maltezou

ATHENS (Reuters) -Greek Prime Minister Kyriakos Mitsotakis will announce more than 1.5 billion euros in tax breaks and other handouts this weekend, officials said, as he seeks to halt a slide in popularity caused by a protracted cost of living crisis and corruption claims. 

The tax deductions, which Mitsotakis will unveil during his annual economic policy speech on Saturday, will target middle-income earners and families with children. Pensioners will also receive handouts, the three government officials said. 

Strong economic growth, a higher-than-expected budget surplus and more comprehensive tax collection will help finance the package, which will come into force in 2026, they said. 

"It's time to reduce taxation for middle-income earners," Deputy Prime Minister Kostis Hatzidakis told public broadcaster ERT on Wednesday.

A finance ministry official said the handouts would not pose any risk to Greece's 2026 budget.

After a 2009-2018 debt crisis marked by years of economic pain, Greece's economy, driven by tourism, has revived and is approaching its pre-crisis size.

But Greece remains Europe's most indebted nation and disposable incomes still trail the EU average due to rising energy, food and housing prices that hurt purchasing power, despite a cumulative 35% minimum wage increase.   

Mitsotakis' centre-right New Democracy party has seen its ratings drop to around 22-25% in opinion polls since June from the 41% of votes it won in 2019 when it came to power on pledges to redistribute the fruits of economic growth more evenly.

The government's poor performance in last year's European Parliament elections forced Mitsotakis to tilt rightwards to win back core voters upset by some progressive policies including the legalisation of same-sex marriage, political analysts said.

The planned new spending may also not be enough to stem a loss of support caused by corruption affairs, including misuse of EU farm subsidies and the government's handling of Greece's deadliest train crash in 2023, which triggered mass protests.

"It may well be the toughest period for the government," said Costas Panagopoulos, head of ALCO pollsters. "It is unlikely that the measures - even if they are in the right direction - can fix its image."

Greece is due to hold its next national election in 2027. 

(Additional reporting by Lefteris Papadimas; writing by Renee Maltezou; editing by Edward McAllister and Gareth Jones)