Greece introduces €1.6 billion relief package to tackle population decline

Greece has announced drastic measures, including tax breaks and other financial incentives, to address a population decline that is on track to make it the oldest nation in Europe.

The prime minister stated that the €1.6 billion (£1.4 billion) relief package was prompted by one of the biggest challenges facing the Mediterranean nation: a demographic crisis of unprecedented scale. 

“We know that the cost of living is different if you don’t have a child compared to having two or three children,” Kyriakos Mitsotakis said on Sunday after announcing the policies. “So, as a state, we should find a way to reward our citizens who choose to have children.”

The measures, which include a 2 percentage point reduction for all tax brackets and a zero rate for low-income families with four children, will be implemented in 2026, according to Mitsotakis. He described the package as the boldest tax reform enforced in Greece in more than 50 years.

The policies build on other initiatives by the center-right government to address the issue.

With fertility rates in Greece among the lowest in Europe – at 1.4 children per woman, well below the replacement level of 2.1 – Mitsotakis has described the problem as a “national threat.”

The Greek population is projected to fall from the current 10.2 million to well under 8 million by 2050, with 36% over the age of 65, according to Eurostat.

Acknowledging the decline had taken on existential proportions, finance minister Kyriakos Pierrakakis noted that fertility rates had halved since the start of the country’s economic crisis 15 years ago.

“Our taxation reform will greatly emphasize this problem… as head of the economic team, I’d say our top priority is the demographic issue,” he stated.

Greece’s near decade-long crisis has been widely blamed for the alarming drop. This is partly because younger people were among those hardest hit by austerity measures required for international rescue funds that prevented bankruptcy and kept debt-ridden Athens in the EU.

More than 500,000 Greeks left the country in search of work during the crisis, primarily young and talented citizens the government is trying to bring back.

The latest measures, which include eliminating tax obligations for those living in rural settlements with fewer than 1,500 residents, will be funded by money from the fiscal surplus, as the economy has recovered.

Officials say declining fertility rates are putting the pension and health systems, as well as labor markets and national security, at unprecedented risk during a time of geopolitical uncertainty.

Sounding the alarm, the British medical journal, the Lancet, said demographic changes of such radical proportions posed an inherent threat to the country’s health system, along with socioeconomic pressures and the uncertainty of the climate crisis. “Greece faces a complex array of public health challenges driven by demographic change,” it said in a study released last week. “The Greek case offers valuable lessons for other countries confronting similar pressures.”

In 2020 – a year after first taking office – the Mitsotakis government introduced a baby bonus to encourage childbirth. The subsidy has since increased from €1,700 for a first child to €3,500 for a fourth, in addition to a monthly stipend of up to €140 per child.

However, with the cost of living rising in a country with some of the lowest wages in the EU, the policies seem to have had little impact. Greece’s education ministry announced this month that it had closed more than 700 schools nationwide, citing a lack of pupils.

With his government’s popularity affected by corruption claims and cost of living concerns, Mitsotakis promised to increase pensions and provide affordable housing by constructing properties on abandoned military sites.

A real estate tax in remote areas will also be eliminated to encourage young people to move to the countryside, where prices are often much lower than in cities. Unaffordable housing is such that younger Greeks often complain they are forced to live with their parents into their 30s – another reason cited for the lack of interest in having children.