The third phase of tax reforms is set to cost the State 1.4 billion euros, equivalent to 1 percent of Greece’s gross domestic product and will benefit principally wage earners, pensioners and small enterprises, the government said yesterday. It plans to offset the burden on next year’s spending – when the changes come into effect – with a modest and restrained budget. The government kicked off tax reforms in June when it unveiled a series of simplified bookkeeping procedures designed to reduce paperwork for companies. A month later, it announced lower taxes on inheritances, parental gifts and donations, shaving 200 million euros annually off tax receipts. Higher levies on offshore firms with real estate in Greece are expected to partially compensate for the loss to the state coffers. Prime Minister Costas Simitis said yesterday the package of personal and corporate tax measures are intended to «boost households’ income and relieve businesses of obsolete and abstruse procedures.» Under the latest proposals, the tax-free threshold for wage earners and pensioners will be lifted to 10,000 euros effective next year from 8,400 euros currently. The ceiling rises to 11,000 euros for wage earners with one child, 12,000 euros for those with two offspring and 20,000 euros for families with more than two children. Tax exemptions for expenses related to rent, tuition for offspring, medical and nursing care, and life insurance are also due to go up next year. Other tax credits in the past for consumer spending of more than 500 euros, purchases of appliances, real-estate donations and acquisitions of mutual funds will be abolished. Taxpayers residing in their own homes will no longer need to pay tax for the residence next year. The new tax proposals also seek to streamline the «objective criteria» system whereby income is mainly computed on the basis of living expenses or the acquisition of certain assets. Effective next year, the procedures will no longer apply to cars below 2,000 cubic centimeters, motorbikes, small boats, second homes of up to 150 square meters and expenditures related to domestic help. For small and medium-sized enterprises and the self-employed, the next fiscal year will see a simpler set of bookkeeping rules for them and the introduction of two amortization rates. Tax credits for group personnel insurance will be increased to encourage firms to insure their employees, while the tax rate on compensation paid to sacked employees will be jacked up. Companies will be able to write off bad debts in cases involving a court ruling. Continuing the government’s determination to cut down on paperwork, the stamp duty for insurance compensation will be abolished next year. Greece will be able to bear the burden of the tax reforms because it plans to draft a «moderate budget» next year and put a tight leash on spending, Economy and Finance Minister Nikos Christodoulakis stressed.