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Taxes increase again in order to avoid dismissals of public workers

28 September 2012 / 21:09:25  GRReporter
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A new tax tsunami is about to sweep Greece. Political leaders, who support the tripartite coalition government, agreed among themselves to not dismiss public workers. This leaves no significant opportunities for manoeuvring in the fiscal adjustment programme and ultimately, the recovery of the Greek economy relies on cuts in the spending of key sections - pensions, salaries and social benefits.

Budget expenditure adjustment should save 11.5 billion euro in total. 7.5 billion euro will come from the cuts of wages, pensions and social security. The increase in the retirement age will save 1.1 billion euro by 2014 and 2.9 billion euro will come from structural reforms.

In addition, Greece has pledged to increase tax revenues by three billion euro by 2014, which will cost taxpayers dearly. The government is preparing to raise the tax on the interest income on bank deposits by 5%. From 10% now, the tax will increase to 15%. According to, if 100 thousand euro are deposited at an interest rate of 4.5%, the profit for the depositor is 4,500 euro per year before the tax and the tax is therefore 450 euro. If its rate increases to 15%, the tax on interest profits will be 675 euro, or in other words, it will increase by 225 euro. The depositor’s net profit after the taxes will melt to 3,825 from 4,050 euro. In this case, Greek analysts are predicting that the measure would have the opposite effect and not only will be ineffective in increasing the revenues to the treasury, but will lead to a new mass withdrawal of deposits from Greece.

The measures in the revenue section of the recovery plan for the local economy agreed so far include:

- Subjecting the employees in liberal professions to a 35% income tax on the first euro, with no right to non-taxable minimum income.

- The tax on the source applicable to commercial sites and some groups on the list of liberal professions may increase from 20% to 25%.

- The advance payment for the annual tax due will be 60% compared with 55% today.

- The threshold of non-taxable income, which is currently 5,000 euro, will gradually increase with a minimum of 1,000 euro from 2013 onwards for pensioners and ordinary workers.
- The new tax scale will consist of four brackets and the income tax rate on the lowest incomes above 5,000 euro per year will be 15%.

- The income tax rate on the annual income higher than 100,000 euro will be 35%.

- Tax incentives and social benefits will be revised and will be allocated on the basis of very strict social criteria.

- Discussions are being held for taxing the undeclared bank deposits of Greek citizens with bank accounts abroad at a rate of 35% or 40%.

- The government promises a reduction of the corporate tax from 43% to 30% or 35%.

- A new type of taxation of real estate will be introduced.

At the end of this week, the coalition government announced in the Greek media some additional changes it intends to make in the tax laws to retain the jobs of employees in the public administration:

- Cancelling the tax-exempt income scale for families with one or more children. In the case of one child, the state allows another two thousand euro tax-exempt income per year in addition to the base non-taxable income of 5,000 euro. Now this exemption will be revoked.

- Flattening the price of heating oil to that of fuel oil. The increase is expected to be 60% compared to last year’s price.

- Another increase in excise duty on tobacco

- Additional tax on wine

- Reducing VAT on establishments, which will be offset by a new fee for a licence for the right to smoke in cafés and restaurants

- Reducing the return of VAT to farmers to 6%.

75% of fiscal adjustment measures will be introduced as early as 2013. The rest should come into force from 2014 onwards. It has been promised for now that the government will reduce the spending in public health, military protection, education and the cost of local government organizations by about two billion euro through structural reforms. If the government fails to address the objectives within the defined period, a new cut in wages and pensions will be necessary, and maybe another increase in taxes. Nothing has been mentioned about reducing the number of public employees.
As for the budget cuts, the government relies on:

- Extending the minimum work experience for retirement from 15 to 20 years.

- Reducing the supplementary occupational pensions by 1% to 15% for amounts between 1,000 and 2,000 euro according to a scale.

- Cancelling the 13th and 14th pension of those insured with the agricultural fund and receiving the lowest pension of 320 euro.

- A ceiling of the pensions of older unmarried women and bachelors to 720 euro.

- Reducing the social benefits for the disabled and disadvantaged

- Reducing the pensions and salaries of uniformed personnel and military by 12%

- Reducing the wages in the public sector by 25% -30% on average.

- Cancelling the 13th and 14th salaries of employees receiving a salary from the state budget.

- Temporarily suspending the additional payment to the salaries of public workers payable for the importance of their post.

- Putting into force the labour reserve for 15 thousand public workers (without specifying the period for the implementation of the measure).

- Reducing the social benefits for patients with kidney failure.

- Reducing the tax breaks for the disadvantaged or disabled by over 67%.

- Cancelling the large family allowance in the agricultural insurance fund.

- Further cuts in operating costs and expenses for medicines in the public health system.

- Merger of institutions, municipalities and administrative districts.

- Additional cuts in budgets of municipalities.

- Closing a large number of municipal companies.

- Cutting the staff of municipalities.

- Increasing public transport ticket prices by 25%.

- Closing and merging schools, universities and other educational centres.

- Introducing a fee for obtaining a Master degree.

- Reducing the cost of educational materials and resources.

Tags: EconomyMarketsGreecePublic sectorTax legislation
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