The Greek Nightmare: Death by social contributions hikes for self-employed & free-lancers

I thought it was a bad joke or some kind of anti-government propaganda when I read the news yesterday: that self-employed and free-lancers will face hikes of more than 200% in social security contributions. I was wrong. It is not a bad  joke but a bitter reality. According to government draft proposal sent to creditors by Labour Minister Giorgos Katrougalos, social contributions for health care and pension will be calculated according to entrepreneurs’ income.

For annual net taxable over €20,000, social contributions will double when compared to today, for higher incomes the hikes could reach up to 223%.  “Saved” from the hazardous hikes are only those with annual income up to 10,000 euro.

Indicative for the hikes is that a self-employed with annual income of €70,000 who is also in the highest social contribution category of Insurance Fund for Self-employed (OAED) pays today €7,000 per year (€580 per month) in social contributions. If the government proposal is accepted by the creditors, he will be called to pay annually €18,000!

Contributions Hikes vs Pension Cuts

According to the Greek government “the hikes come as an alternative to avoid cuts in main pensions.”

After six years of the country’s economic collapse, the narrow and broader public sector still receive higher pensions that the private sector.

Last week I heard on TV that the state subsidize with €17,000 per year per pensioner in the Greek Public Power Company but with just €1.500 per year each pensioner of IKA, the country’s biggest insurance fund for private sector employees. Of course, a cut in the public sector pensions would have a huge political cost for the government – for any Greek government as civil servants are the main pool of voters for governments.

Social security contributions of 38.45%

According to the draft law, self-employed, free-lancers but also doctors, lawyers, engineers, farmers will pay 20% of their monthly income for pension contributions, regardless of the time they started their business and their social security.

The contributions for health care will be 6.95% of the income.

but the nightmare of social contributions do not stop here. An additional 7.5% comes for the supplementary pension and another 4% for the lump sump.

All these make a nice 38.45% of the net taxable income for social contributions alone. No tax 26%, not tax in advance 100%, not trade fee €650-100.

The monthly income will be determined either as the net taxable income based on the previous year tax declaration or according to the net value of the monthly services of the current year based on the issuing of receipt, invoices etc.

However, KTG understands, that the legislator considers as minimum income of the above mentioned, the minimum wage for employees which is 586 euro gross for single, above 25 years old. the legislator will not accept that contributions would be lower that the 26,95%, which is at least 158 euro per month even if the self-employed will earn below the minimum cap.

A self-employed with 10 years in OAED pays €4,464 annually in social contributions independently of the income. With the new changes, he will pay €4.790 if he declares €20,000 income and almost double – €8,080 – if he declares income €30,000.

Furthermore, the Greek proposal foresees also hikes in the health care contributions. Someone who pays 90 euro per month today, will have to pay 115 euro as of 1.1. 2017.

Beneficiaries of the changes are only those with income up to 10,000 euro per year. Nowadays, they pay €245 per month in the lowest category of OAED, that is if they are new starters. with the Social security & Pension Reform, they will pay something like 117-158 euro per month. But let’s not forget: at the end of their working life their pension will be accordingly low.

Got it wrong…

The news has set on alert the one million self-employed but SYRIZA-ANEL government claims that the self-employed wanted the connection of social contributions with the income, anyway.

However, the government has apparently got it wrong. Self-employed and free-lancers wanted in the social contributions decrease especially for the low incomes and the new starters, not hikes.

Taxes, fees and social contributions swallow 80% of income

With the new hikes, a monthly turnover of €1,000 gross will bring to the self-employed just €205 net, roughly calculated:

 – 182 Value Added Tax to be paid to the state

–  223,6 social contributions

– 170 tax

– 170 tax in advance0 trade fee

– 50 trade fee

———————

€1,000 – €795 = € 205

The example is very roughly calculated because the tax office deducts the social contributions from the income to be taxed. Then again, it accepts not other business expenses.

KTG assumes that the self-employed will also have to pay running cost like rent, electricity, water, telephone and other bills in order to run his broke business and his household in the collapsed Greek business world.

Government lives in a bubble

Deputy Labor Minister responsible for the Social Security, A. Petropoulos, told media this morning, that there were thoughts to exempt free-lancers from the upcoming hikes. “The social contribution share would be split between the free-lancer and the employer,” Petropoulos told ANT1 TV, displaying a total ignorance of the real Greek labor world. Living in a nice bubble of a secured income away from the real world, Petropoulos apparently assumed that all free-lancers are in a work contract with one employer. This is only partly true in contemporary labor conditions, that employers do not hire personnel on a contract. But the deputy Labor Minister as well as the other members of this government ignore the thousands of free-lancers who get assigned to fulfill one contract now and another one maybe 4 months later and they see the money coming with delays of several months.

Surreal Greek world

In the surreal Greek world we live in, OAED kicks you out of the health care system, if you have not paid social contributions (for pension and health care) for 2 months. The debt remains in the your account by OAED, month by month, and you will never get rid of the debt until you pay it in full. The OAED demands that you pay back not only your pension contributions but the full amount of health care debt even for the months or years that you were without health care insurance.

A friend of mine has a debt of 10,000 euro to OAED. She has no health care insurance since four years but she has to pay in full the debt. She is not alone. One in two Greek self-employed and free-lancers have been unable to pay regularly their contributions to OAED.

According to data of October 2015, the black hole in Greek pension funds is 13.8 billion euro. And this is not only due to debts of the insured, the self-employed and the employers.  These are debts of one social security fund to another that used to borrow and lend from each other.

The Greek Nightmare

In 2015, more than 60,000 Greek businesses moved their operation center to nearby Bulgaria that offers low tax rates and incentives. I wonder, how many more businesses will leave Greece in 2016 and in the coming years. Or they will seek again the “safe heaven” of tax evasion and social contributions evasion.

Be sure that they will find a way to cheat, despite the Finance Ministry’s efforts to combat tax evasion with the enforced use of plastic money.

You can’t blame them, can you?

I remember, I had written an article “The death of the Greek salesman” posted in August 2010, just four months after the country sought the ‘aid’ of International Monetary Fund. It was about VAT and tax hikes, recession and unemployment.

I didn’t know that The Greek Nightmare especially for small and medium enterprises had no end.

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