MacroPolis

With the prospect of adverse scenarios in the US–Iran conflict now entering the mainstream — three weeks into the war, with no obvious off‑ramp and energy markets on edge — the Greek government finds itself back at the drawing board. It is even willing to revisit positions it defended vehemently during the previous energy crisis triggered by the war in Ukraine, such as its opposition to interventions in indirect taxes on fuels.

The government moved quickly to contain the risk of price hikes by reintroducing profit‑margin caps for petrol stations and more than 60 categories of widely consumed goods. The measure, a legacy of the Ukraine conflict, had been in place until May last year. Still, there is a growing recognition that the situation may soon require bolder, more decisive action to support households and businesses.

Prime Minister Kyriakos Mitsotakis and his advisers are acutely aware that the cost of living and the government’s economic record remain political vulnerabilities. With national elections roughly a year away, there is little room for another wave of price increases that would further erode Greeks’ purchasing power.

Government officials briefed last week that reductions in the excise tax on fuels are now under consideration. The finance ministry is also running scenarios for a possible revival of the “Market Pass” — a subsidy on supermarket spending.

The Market Pass ran from February to October 2023, offering between 22 and 100 euros per month depending on household size and income criteria. It is estimated to have reached 2.8 million households, at a total fiscal cost of 251 million euros.

However, interventions in indirect taxation are something the government has consistently resisted since the start of the Ukraine war, pushing back against opposition calls to reduce VAT on basic goods — a measure adopted by several other EU member states.

Beyond ideological objections (the government argued that VAT cuts would not work in the Greek context and would simply boost retailers’ profit margins) there are also fiscal and political considerations at play.

The Greek budget relies heavily on indirect taxation. The 2026 budget projects indirect tax revenues of 40.9 billion euros, up from 39.21 billion last year and 36.92 billion in 2024.

VAT revenues alone are expected to rise from 25.68 billion euros to 29.23 billion in 2026. Excise taxes are forecast to bring in 7.46 billion euros, broadly stable compared to 2025.

Income tax revenues over the same period are estimated at 26.76 billion euros in 2026, compared with 26.07 billion last year.

The cost‑of‑living crisis, combined with finance ministry interventions to expand e‑transactions and link POS systems with cash registers, has been a major driver of the surge in VAT receipts.

Excise taxes, meanwhile, are fixed amounts per quantity — more than 700 euros per 1,000 litres — placing Greece fifth‑highest in the EU and almost double the European Commission’s minimum charge of 360 euros.

Given the central role of indirect taxation in budget execution, the authorities have been reluctant to adjust VAT rates in ways that could jeopardise such a reliable revenue stream.

At the same time, the strong performance of indirect taxes has created fiscal space for voter‑friendly measures and handouts that bolster the prime minister’s profile without endangering fiscal targets.

The PM’s office is fully aware of the latest ELSTAT data on living conditions, released this week, which show that during Mitsotakis’s long tenure the standard of living for Greeks has not improved.

In 2025, the share of the population in severe material and social deprivation stood at roughly 15 percent — unchanged from 2020, the first full year of ND’s time in office — and worse than the 13.5 percent recorded in 2023.

The risk of poverty and social exclusion follows the same pattern: 27.5 percent in 2025, unchanged from 2020 and up from 26.1 percent in 2023.

Inequality indicators have also stagnated. The Gini coefficient has remained stable at 31.6 percent over the last five years, while the S80/S20 income ratio stands at 5.18, compared with 5.23 in 2020.

Confronted with this deterioration in living standards since 2023, the government is now seeking EU‑wide solutions and greater fiscal flexibility — including activation of the escape clause — to allow interventions in fuel taxation without eroding the fiscal space it hopes to preserve for further handouts and tax relief in 2026 and 2027.

It will not have gone unnoticed in the PM’s office that, ahead of Thursday’s EU summit, Italy, Portugal and Austria all announced reductions in fuel taxes, assuming the fiscal cost of their energy‑relief measures. Also, Spain on Friday reduced the VAT on fuel products to 10% from 21%.