ECONOMY

SEV backs indirect tax hikes

The head of the Federation of Greek Industries (SEV) yesterday backed the government’s measures, announced last week, which included indirect tax hikes. «The inability of successive governments over the past several years to contain public spending, the enormous public debt and to cut the state sector down to size led the government to take measures, which include a rise in (indirect) taxes. This particular measure will definitely affect inflation. I believe, however, that the media and some people have overreacted and it is this overreaction that creates expectations of higher inflation,» Odysseas Kyriakopoulos, SEV’s chairman and chief executive, told reporters. Kyriakopoulos called the measures «mild, the mildest that could be taken under the circumstances.» The government raised VAT taxes to 19 percent, 9 percent and 4.5 percent – the first being the regular rate and the other two the special lower rates applied to select products and services – from 18, 8 and 4 percent previously. It also announced steep hikes in indirect taxes on cheaper cigarettes as well as several alcoholic beverages. In announcing the measures, the government admitted that they are going to boost the average annual inflation rate by 0.7 percent in 2005 and will slow down economic growth. This prompted critics to blast the government for being too late to implement the measures favoring indirect taxes, which put a heavier burden on the poorest and for killing any chance for retail markets to rebound. Kyriakopoulos said the effect of the measures on inflation, on consumption and on incomes would not be as great as feared, adding that the measures are temporary. As soon as fiscal problems ease, VAT will return to its previous rates, he claimed. Asked to comment on the remarks made Monday by Development Minister Dimitris Sioufas, to the effect that Greece is falling behind in the competitiveness of its products and services, Kyriakopoulos blamed the prevailing system of collective wage agreements which resulted in excessive pay raises. «The global trend is for each enterprise to freely negotiate wages with its employees,» said Kyriakopoulos, who admitted nonetheless that collective agreements had kept strikes at low levels over the past 15 years. Part of the government’s rationale for raising indirect taxes, with their negative effect on inflation, was the disastrous lag in collected revenues. However, according to data released yesterday, considerable progress was made on that front in March. According to the data provided by Deputy Economy and Finance Minister Adam Regouzas, budget revenues during March increased 11.4 percent over last year. This recovery was due to higher revenues from customs, the state lottery and dividends paid from listed firms in which the state has a stake. In the first quarter of 2005, revenues have risen 5.3 percent over the same period in 2004, compared to a budget target of 7.2 percent for the whole year. Regouzas also announced that the so-called «repatriated capital» – from people who held assets abroad and had not declared them – amounted to 555.3 million euros, less than 5 percent of what the government had expected.