ECONOMY

Gov’t may bring income tax reform forward to next year

The government said yesterday it was considering bringing forward its planned reduction in income tax rates, and introducing them in two years’ time rather than three. Economy and Finance Minister Giorgos Alogoskoufis told a press briefing that if the recent strong improvement in the pace of public revenue collection continued, the planned phased reduction of the top tax rate from 40 percent for incomes up to 50,000 euros to a uniform 25 percent in 2008 would be effected in one go next year. The reform would also include a raising of the tax-free ceiling for low incomes to 12,000 euros from 11,000 euros today. The present rate of 15 percent for incomes between 11,000 and 21,000 is to be abolished. The tax-free ceiling will be raised by 1,000 euros per child for the first two children and to 22,000 for five-member families, while unemployment, although now lower than 10 percent, is expected to fall further, he said. Addressing other issues, Alogoskoufis reiterated his confidence in the economy’s prospects despite the uncertainty regarding oil prices and rising interest rates. He urged citizens «not to be affected by ‘scary’ oil price scenarios.» The economy is projected to grow at a rate of 3.8 percent this year, he said. Exports continue to grow and now account for one-fifth of economic growth; private investment was up 1.5 percent in 2005 and core inflation was down, although rising oil prices caused the total to increase to 3.5 percent. Alogoskoufis noted that Greece’s oil price level is still lower than in the rest of the eurozone. He assured that the execution of the budget was progressing well and said the government would fully honor its pledges. The minister added that the government’s fiscal rehabilitation drive will continue and that the target of bringing the public deficit to below the EU-prescribed 3 percent of gross domestic product this year (from 4.5 percent in 2005) is feasible. Alogoskoufis said the government is drafting comprehensive programs to deal with the problem of ailing industries and unemployment in a number of prefectures. He said that the measures announced last week for workers laid off in the textile industry in Naoussa, Macedonia, where unemployment runs at more than 20 percent, could be a guide for schemes in other areas affected by deindustrialization, on the basis of an integrated framework. However, he cautioned that early retirement programs, on which the Naoussa plan was largely based, could not become the rule as they would place an excessive burden on social insurance funds. «This is a method of last resort and must be used very sparingly,» he said.