Top 300 firms hit with one-off tax

Charge will fund benefits to low income earners; cost of pre-election pledge passed on to healthy companies

Finance Minister Giorgos Papaconstantinou at yesterday’s press conference, where he announced a one-off tax to be paid by Greece’s leading firms. The minister said the charge will contribute to a redistribution of income.

Greece’s top 300 companies will be called upon to provide most of the 1 billion euros in benefits to be handed to low income earners in a deal that will help the government meet a pre-election pledge without dipping into state finances.

Finance Minister Giorgos Papaconstantiniou said yesterday a one-off tax will be imposed on 2008 profits posted by companies that have benefited from tax cuts in the last five years.

“No government likes to take one-off measures, but the situation is very difficult,” the minister told reporters after a Cabinet meeting.

The tax will apply on 2008 pre-tax earnings and range from 5 to 10 percent, depending on the size of the profit. About 140 businesses with pre-tax earnings of 5 to 10 million euros in 2008 will face a 5 percent one-off tax while another 85 firms with profits of 10 to 25 million will be hit with a 7 percent tax rate. For those with earnings of more than 25 million euros, the tax rate will be 10 percent.

The list of companies likely to pay the one-off levy include many of Greece’s top banks, industrial firms and retailers, according to a list prepared by research company ICAP. The 1 billion euros of support will relieve about 2.5 million low-income individuals, the minister said. Most of it, 870 million, will come from the corporate tax and the rest from an increase in tax on properties worth more than 600,000 euros owned by individuals.

The minister said the tax will boost “those who need it most” without burdening the state budget.

With Greece’s budget deficit this year seen at 12.5 percent of output, European Commissioner for Economic and Monetary Affairs Joaquin Almunia said in Brussels that Greece will be censured next week for failing to remedy the shortfall.

Greece will face the next steps in the Commission’s excessive deficit procedure which could lead to fines, though this has never happened. Greek shares fell 2.35 percent in what analysts said was a reaction by investors to the news and the overall downward trend in European markets. The reaction from business leaders was mixed, with the president of the Hellenic Federation of Enterprises (SEV), Dimitris Daskalopoulos, supporting plans for the tax. Greek business “is well aware that the economy is in an emergency and is willing to contribute with a one-off charge,” he said.

On the other hand, Athens Chamber of Commerce and Industry (EBEA) president Constantinos Michalos opposed the measure and called on the government to stick to its pre-election promise and not impose additional one-off tax measures.

Greece’s budget deficit is expected to remain above 12 percent of gross domestic product in 2010, the European Commission said in its autumn forecasts yesterday, which painted a particularly grim picture of Greece’s economy next year, with jobless numbers growing and growth staying low. The Commission said the deficit is seen at 12.2 percent of output next year, versus 12.7 percent in 2009, with the “downturn and high budget deficit expected to push the debt higher.” Public debt is seen rising to 124.9 percent of GDP in 2010, the worst in the eurozone, from 112.6 percent this year and 99.2 percent in 2008.

The report makes the assumptions that the Greek government takes no steps to up revenues and does not repeat the one-off expenditures seen in 2009.

The contraction of economic activity is expected to weigh “heavily” on the labor market with jobless figures likely to hit 10.25 percent next year, versus 9.0 percent in 2009.

On the growth front, GDP is forecast to show a negative growth rate of 0.3 percent, against a contraction of 1.1 percent this year.