ATHENS – Already under an avalanche of tax hikes – including a doubling of income and property taxes – beleaguered Greeks will be hit with a new round of increases in June when the government will pile on more taxes in a desperate attempt to keep from going bankrupt, despite a new bailout of $172 billion from international lenders to go along with a first ongoing series of $152 billion in rescue loans that have failed to slow the country’s slide toward insolvency.
A new tax bill, which is not which is not expected before June, is set to be based on a report issued by the International Monetary Fund and will include such reforms as the use of a flat Value-Added Tax (VAT) rate and an increase in indirect taxes, leading to an additional burden on taxpayers. The VAT for many tax categories in Greece is already 23 percent, among the highest in Greece, and has helped create a deep recession now in its fifth year, with 21 percent unemployment and the closing of more than 111,00 businesses.
The report, prepared by the technical mission of the IMF, also included an end to the tax-free ceiling of $6,731 per year and the separate taxation of profits from real estate with a 20 percent rate, which means even the poorest Greeks will now be required to pay taxes at a time when tax evaders are costing the country $60 billion despite a recent crackdown and when many Members of Parliament are reportedly stashing fortunes outside the country to avoid paying taxes, in violation of Greek law. None have been prosecuted.
Many Greeks are struggling to meet tax obligations and Finance Ministry officials said many can’t meet the higher taxes, the newspaper Kathimerini reported. Despite the troubles, Greece agreed to cut the minimum wage up to 32 percent – and tax the poor – and when some wages have been cut to as low as $511 a month before taxes and some pensions slashed to the same level. Greece had reportedly resisted going after its poor but relented on demands from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) which is footing the bill to rescue Greece from decades or profligate spending and packing public payrolls with needless political hires in return for votes.
The new taxes must be implemented by a new government after elections in April to replace an interim hybrid administration of PASOK Socialists from the former ruling government and their bitter rival New Democracy conservatives who have taken turns ruling the country the last 35 years. Over the last two years, Greece has taken to making Greeks pay a second property tax, put into their electric bills under the pain of having power cut off if they don’t pay, and adding a second income tax. Both were supposed to be for one year but are continuing this year and some Greeks expect they could be permanent.
Other measures proposed by the IMF include: the reduction of income tax brackets from eight to just three or four, the increase in bond and deposit interest rate tax from 10 to 20 percent, the abolition of tax exemption for arable land owned by taxpayers, the end to each finance minister’s ability to revise official property values when he wants with the introduction of annual revisions, the abolition of reduced VAT rates on eastern Aegean islands, and the imposition of a set special consumption tax on wine and on rolling tobacco.
Despite the tax increases, expected revenues are falling short of predictions and outgoing World Bank President Robert Zoellick told Reuter that he thinks the second bailout is just buying time for Greece and won’t solve its economic problems. “It’s too early to know, partly it depends on the actions the Greeks have to take,” he said. “I think that the European Union has dealt with Greece as one element but the core elements are really going to be the success of some of the bigger countries, such as Italy and Spain.” Eurozone countries are demanding 38 specific changes in Greek tax, spending and wage policies by the end of this month and have laid out extra reforms that amount to micromanaging the country’s government for two years, according to documents obtained by the Financial Times.
They range from the sweeping – overhauling judicial procedures, centralizing health insurance, completing an accurate land registry – to buying a new computer system for tax collectors, changing the way drugs are prescribed and setting minimum crude oil stocks. “The program is much, much more ambitious than economic reform,” said Mujtaba Rahman, Europe analyst at the Eurasia Group risk consultancy. “This is state building, as typically understood in traditional low-income contexts.”