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Tax law a new obstacle

 As coalition bristles, Stournaras says measures could change but targets are fixed

The tax bill due to be submitted to Parliament soon is proving a new source of friction for the coalition government, prompting Finance Minister Yannis Stournaras to show a degree of flexibility on Friday in accepting that some aspects could be changed, although he stressed that any alterations would have to be matched by equivalent revenue-raising measures.

Leaving a meeting with Prime Minister Antonis Samaras, Stournaras faced a barrage of questions regarding the most controversial change to the tax system, which abolishes breaks for families with children. “There is always room for maneuver,” he said, but added that there are 2.5 billion euros of revenue-raising measures to be implemented and if some are scrapped, the equivalent amount would have to be derived from alternative taxes.

Coalition partners PASOK and Democratic Left have raised objections to families losing tax breaks that rise according to the number of children they have. The new law would hit families with three children or more particularly hard. A family with three children that earns 25,000 euros pays 2,970 euros a year in income tax, whereas under the proposed scheme it would pay 3,650 euros. It would also lose about 1,000 euros a year in benefits, amounting to a 1,744-euro loss overall.

“Anyone who proposes something should be abolished has to suggest what would replace it,” said Stournaras, who added that Greece needs to retain its trustworthiness in the eyes of its lenders since it has “agreed and voted on these things.”

Stournaras’s comment came a few hours after German lawmakers approved the debt deal for Greece agreed by the eurozone and the International Monetary Fund earlier this year. Although 23 lawmakers from Chancellor Angela Merkel’s coalition opposed the agreement, the opposition Social Democrats (SPD) and Greens backed the deal, giving it 473 of 584 votes.

Finance Minister Wolfgang Schaeuble said during the debate that a Greek default “could lead to the breakup of the eurozone” but he added that any talk of writing down Greek debt could be detrimental at this time. “If we say the debts will be written off, [Greece’s] willingness to make savings is correspondingly weakened,” he said. “Such false speculation does not solve the problems.”

For the Brussels deal to stand, Greece will need to execute a successful buyback of 30 to 40 billion euros of its bonds. Stournaras suffered an initial setback in his pursuit of this target on Thursday, when Greek banks, which hold about 15 billion euros of government bonds, expressed reluctance to take part in the scheme. However, the head of Greece’s main social security fund (IKA), Rovertos Spyropoulos, indicated on Friday that he would recommend to IKA’s board that the organization should take part in the buyback. “IKA’s interests are linked to the sustainability of the Greek economy,” he said. Greece’s social security funds hold at least 8 billion euros of government paper.

ekathimerini.com , Friday November 30, 2012 (20:00)  
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