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Samaras Wants VAT Cut, Solidarity Tax End

tax-office-620x300Greek Prime Minister Antonis Samaras, still feeling the effect of his New Democracy Conservatives second-place finish in the European Parliament elections, is reportedly planning to scrap a dreaded “solidarity” tax and reduce the Value Added Tax (TAX) as part of his strategy to ward off the possibility of early national elections.
The major opposition Coalition of the Radical Left (SYRIZA) has been hounding him for snap polls after it won the EU ballot but Samaras has so far rejected it. Still, he’s said to be trying to put together a strategy to convince Greeks his backing of austerity helped bring a burgeoning recovery at the same time he wants to help reduce its numbing effects.
The hated solidarity tax was instituted three years ago by then-finance chief Evangelos Venizelos when PASOK was in power. He is now the Socialists leader and Deputy Premier/Foreign Minister in the coalition government of Prime Minister in Samaras’ administration.
The solidarity tax was supposed to be for one year but proved so lucrative in helping Greece combat a lingering economic crisis it was kept. But it is a key symbol of austerity that has helped drag down the popularity of the ruling parties and Samaras is trying to distance himself from it.
Citing unidentified sources, the newspaper Kathimerini said the tax cuts are a key part of Samaras’ plan to dissociate himself from the measures he imposed on orders of the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) that is putting up 240 billion euros ($327 billion) in two bailouts.
Samaras reportedly wants to end the solidarity tax this year – or reduce it – and cut the VAT, although that requires consultation with the Troika, which is fearful Greece will slide back into spendthrift ways. Samaras may announce the tax cuts at the Thessaloniki International Fair in September 1 and begin them on Jan. 1, 2015.
New Democracy is anxious to get back middle class support and show he’s determined to scale back some of the pay cuts, tax hikes, slashed pensions and worker firings that have created record unemployment and deep poverty.
He also wants to avoid continued pressure for early national elections now that SYRIZA overtook New Democracy by 3.8 percent in the EU ballot. The solidarity tax was due to expire at the end of the year anyway, and it would require a vote in Parliament to keep it, and the government has only a three-vote majority there for now.
If the government can avoid renewing the solidarity tax, it is likely that Samaras will seek a confidence vote in Parliament. This could force independent MPs, as well as those within the weakened Democratic Left (DIMAR) and Independent Greeks to pick sides ahead of SYRIZA attempting to force national elections over the nomination for the successor to President Karolos Papoulias, whose tenure ends in February.
The government’s ability to scrap the solidarity tax depends to a large extent on how debt relief talks with the Eurozone progress later this year and the Troika’s ongoing reviews.
The IMF on May 31 okayed a next installment of 3.4 billion euros but said there can’t be any let-up in reforms, many of which are still lagging.
“Additional fiscal adjustment is necessary to ensure debt sustainability, through durable, high-quality measures, while strengthening the social safety net,” said Naoyuki Shinohara, the IMF’s Deputy Managing Director. “It is essential that the authorities continue to improve tax collection, combat evasion and strengthen expenditure control.”
Shinohara also expressed concern about some weaknesses in the Greek economy. “Despite significant wage adjustment, export performance remains comparatively weak. The redoubling of efforts to liberalize product and service markets is therefore welcome,” he said.
“Addressing the very high level of nonperforming loans remains an important priority,” added the IMF official. “While there is no acute stability risk, it is critical for the economic recovery that banks be adequately capitalized upfront to recognize losses on the basis of realistic assumptions about loan recovery.”

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