Minister grasps tax rise nettle

Alogoskoufis hopes VAT rises and hike in cigarette and alchohol rates will bring in 2.6 bln euros

Economy Minister Giorgos Alogoskoufis (l) and Interior Minister Prokopis Pavlopoulos are quizzed by journalists after exiting the prime-ministerial residence following yesterday’s Inner Cabinet meeting. Senior ministers approved plans to increase value-added tax rates while hiking taxes on cigarettes and alcoholic drinks in an effort to improve state revenues in view of the country’s embarrassingly high budget deficit. The measures will come into effect on Friday — April Fool’s Day. Under Greece’s revised Stability and Growth Program, made public yesterday, the 2005 deficit will reach 3.5 percent of GDP from 6.1 percent this year, and 2.8 percent by the end of 2006.

Promising that it would be the last for the foreseeable future, Economy and Finance Minister Giorgos Alogoskoufis yesterday unveiled a virtually immediate hike in VAT rates and tax on alcohol and cigarettes in a bid to claw back the runaway public deficit.

Alogoskoufis presented a set of measures, including state cutbacks, that he hopes will boost state coffers by some 2.64 billion euros by the end of 2006, when Greece will have to meet a European Commission deadline to reduce its deficit below 3 percent of GDP - the eurozone limit - from the current 6.1 percent.

The overwhelming majority of this extra income, some 1.5 billion euros, is set to come from the increases in VAT announced by Alogoskoufis yesterday. As of Friday (April 1), the standard VAT rate for most goods, now 18 percent, will rise to 19 percent. VAT on food, fuel, medicine and various services such as transport and hotel costs, which is currently 8 percent, will be pushed up to 9 percent. The lowest VAT rate of 4 percent, which is applied to the sale of cinema and theater tickets as well as newspapers and books, will rise to 4.5 percent.

Businesses will have to adjust their price lists and cash registers will need to be reprogrammed to reflect the new rates on Friday.

Meanwhile, Alogoskoufis added that special taxes on alcohol and cigarettes would also rise from Friday. The tax on alcohol will be ratcheted up by a fifth, although traditional Greek drinks like ouzo and tsipouro will only face a 10 percent rise. The new rate will only be applicable to bottled products, apart from wine, which is exempt from the hike. The increase will give the government some 60 cents extra, on average, from each bottle of whisky sold. A rather more complicated rise in the tax on cigarettes will see the price of each pack range from between 1.40 and 3 euros.

Alogoskoufis pledged that there would no more hikes this year or next, and pointed out that the new 19 percent VAT rate was still slightly lower than the EU average. This did little to appease PASOK leader George Papandreou, who labeled the measures «evidence of a total governmental inadequacy» and accused New Democracy of targeting the poor unfairly. Christos Polyzogopoulos, president of General Confederation of Greek Labor, Greece's largest umbrella union, echoed this view, calling the tax rises «anti-social» and «anti-labor.» The Communist Party, KKE, said in a statement that the taxes constituted a fresh «raid» on workers' incomes and that the measures should be met by mass protests.