Greeks Bracing for Another Round of Tax Hikes

ATHENS – As Greeks struggle through a Christmas season shorn of much of their bonuses, the government is preparing to take a second income tax from them – those who aren’t evading taxes – through a monthly deduction starting Jan. 1, even as international lenders are demanding the government save or cut another $2.6 billion after saying there should not be further assessments. Greece is surviving on a series of $152 billion in loans from the Troika of the European Union-International Monetary Fund-European Central Bank given on condition of massive pay cuts, tax hikes, slashed pensions and scores of thousands of layoffs, and a promised second bailout of $175 billion has more of those coming. Christmas bonuses were delayed until this week – after a crucial weekend when desperate store-owners remained open in hopes of luring customers, and many taxpayers also were hit with bills to pay a second income tax that for many was larger than the bonuses that had been reduced some 75 percent, wiping out their Christmas shopping money, bad news for businesses fearing they could join the more than 100,000 that have closed in a deep recession caused by the austerity measures, more of which are coming, including prospects of a tax on bank deposits.

The IMF’s mission chief in Athens, Poul Thomsen, earlier this month said Greeks were taxed-out and the government should find some other way to raise revenues to pay back lenders, mostly French and German banks, but a coalition government led by former ECB Vice-President Lucas Papademos is pressing ahead with withholding income taxes on top of income taxes – two income taxes – and two property taxes. Both were supposed to be for one year only but the government said the income tax surcharge of 1-5 percent of income will last for at least three years and probably longer and would be deducted before Greeks file their 2011 tax returns.
The newspaper Kathimerini reported that the Troika, following a visit to Athens last week, said there’s still a $2.6 billion shortfall despite a wave of tax hikes, including on the poor as the tax-free threshold will fall to making those who earn only $6,700 a year pay too while tax evaders costing the country more than $60 billion remain at large despite repeated vows by the government to prosecute them. About 50 were arrested in a recent crackdown but none have been prosecuted. Greece has a month to give the Troika a plan, the paper reported, or the second bailout will be at risk and that provides a chance for the country to write down 50 percent of much of its debt if an elusive agreement can be reached with lenders.
The budget for 2012, which Parliament approved earlier this month, foresees some $6.52 billion in spending cuts and another $4.7 billion in tax collections although previous estimates of how much could be gained have fallen far short of projections as the taxes have been assessed mostly on workers, pensioners and the poor. The aim is to report a primary budget surplus of 1.1 percent of Gross Domestic Product (GDP) next year, hoping for a miracle recovery from a 10 percent deficit. Sources said that the Troika has not told Greece where to squeeze the population but wants greater emphasis to be placed on speedier structural reforms. The previous government of former Prime Minister George Papandreou, who resigned on Nov. 11, failed to implement a privatization program to raise $70 billion and the coalition government has not made any headway either. Greece’s lenders also indicated that they would accept measures for 2013 and 2014 being finalized in June, when any new loan agreement is due to be signed.
Finance Minister Evangelos Venizelos suggested to the Troika that if the three parties in the interim administration could not agree on the new measures, then the next government would decide them. Elections had been set for Feb. 19 but now seem certain to be delayed because the coalition, comprised of holdover ministers from Papandreou’s PASOK Socialists, their bitter rivals New Democracy conservatives and the far Right-Wing LAOS party are squabbling and trying to position themselves for the next poll, leading to reports that Papademos may reshuffle the Cabinet.
Time is running out as a new agreement has to be reached by March if a new bailout is to begin because the country will run out of money without more loans and won’t be able to pay workers and pensioners, creating a further dilemma for the prospect of elections. This appears to leave Greece with little option other than for the current coalition to negotiate the new measures with the Troika or for snap elections to be held in January so the new government could conclude the talks with the Troika but confusion remains and reigns and Greece.