ECONOMY

Alogoskoufis has soothing words

The government said yesterday that the adverse impact on prices of its indirect tax hikes which were announced on Tuesday would be transient, but urged consumers to be vigilant for any excessive increases. «The measures announced are permanent but their side effects transient. In essence, it is a restructuring of the tax system… Passing the full increase in value-added tax (VAT) onto prices would not be justified and vigilance is needed for this reason,» Economy and Finance Minister Giorgos Alogoskoufis told SKAI radio in a telephone interview yesterday. The tax hikes, effective today, include raising the standard VAT rate on most goods from 18 to 19 percent, and the rate on food items, fuel, medicines and services such as transport and tourism from 8 to 9 percent. The lowest rate, which is applied to cinema and theater tickets as well as newspapers and books, will rise from 4 to 4.5 percent, and a lump-sum tax is being added onto the cheapest cigarettes and alcohol. Alogoskoufis said he hoped the total impact on inflation would be less than 1 percent. He justified the extra burdens on household budgets, which come not long after the announcement of limited income tax relief measures, by claiming that the deficits the government had inherited were beyond its its expectations and they had to more than halved, from 6.1 percent of GDP last year to below 3 percent in 2006. «There is no more room for kidding ourselves… We did all we could to avoid the new tax measures, but when it became clear, with the final figures of the 2004 budget, that we had to cover a great distance, we began looking into the best way of reducing the deficit,» he said. Alogoskoufis did not rule out some additional but limited corrective measures. «Clearly, we do not foresee tax measures as broad again… In case of any negative developments, some small corrections are possible but not of the same character and extent.» He confirmed that the government plans to replace other taxes with VAT on real estate which will put the market on a sound footing and will significantly reduce the property transfer tax. Alogoskoufis said the extent of tax evasion, particularly from illegal fuel trading, is a major problem and the government’s strategy is to fight it while also reducing public spending. Separately, Deputy Finance Minister Adam Regouzas urged tour operators not to raise their prices in response to the tax hikes. As of today, all retail outlets and public utilities have to issue receipts with the new higher VAT rates. The only exception are pharmacies, for which the 9 percent VAT rate will come into force on April 16. As it is widely expected that a large number of traders will not have had sufficient time to adjust their cash registers to the new rates, the Finance Ministry said they can issue handwritten receipts. The Cash Register Importers and Manufacturers Association said its members were in contact with their suppliers in order to be able to adjust the machines, particularly as regards the now-decimal 4.5 percent rate. The association can be contacted by phone at 210.569.7765.