ECONOMY

Tax reform will include abolition of some tax breaks

Deputy Economy Minister Adam Regouzas said yesterday that the government will abolish several tax breaks, but claimed this will be targeted at higher incomes and will not negatively affect lower incomes. The new conservative government plans to introduce a new tax law in the fall. A committee of experts, whose composition will be announced in the coming days by Economy and Finance Minister Giorgos Alogoskoufis, will be set up to prepare the law. The government has already announced the name of the committee’s president, Nikos Tatsos, a professor of public finances at Athens’s Panteion University. According to information, the committee will be expected to propose reducing the top income tax rate from 40 percent to 37 percent, with immediate effect – that is, it will apply to incomes earned in 2004 – and, eventually, to 35 percent. It will also propose an increase in the tax-free portion of income, to about 14,000 euros for a married taxpayer with two children. The new tax code will dispense with so-called «evidence of income,» such as luxury cars and yachts as a means of estimating a taxpayer’s worth. It has been decided that including them has brought in little additional revenue. Tax breaks for house rentals and household expenditures will be abolished but will be retained for mortgage loans, if used to acquire the taxpayer’s first such property and private insurance premiums. Regouzas insisted that these measures will benefit those with lower incomes, despite evidence to the contrary. What will certainly benefit lower incomes is linking income tax brackets to inflation. It remains to be seen whether the readjustment will be annual or over a longer period. Middle-to-lower incomes had been seriously affected when income tax brackets remained unadjusted for inflation from 1990 to 2001. Despite lowering the top income tax, Regouzas said that the ratio of direct to indirect taxes will change in favor of the former. Greece is an exception among European countries in that more than 60 percent of its tax revenues derive from indirect taxes. He did not say anything about cutting indirect taxes, which would be necessary if the goal of raising a greater portion of revenue from direct taxes is to be reached. The proposals would also abolish the 0.3 percent tax on stock transactions and would replace it with a tax on added value.