Draft 2006 budget and tax bill ready

The draft 2006 budget, due to be presented to Parliament in October, is ready, along with a tax bill that will be submitted at the same time, according to government officials. It is highly likely, however, that the budget’s figures, which the government has not revealed, will be amended, depending on the size of the gap between projected and actual revenue in 2005. The government, aware of the revenue lag, has decided to introduce its much-publicized tax cuts gradually. The goal of the 2006 budget is to bring the deficit below 3 percent of Greece’s GDP, in line with the government’s commitment to the European Union. This is a non-negotiable target: Failure to implement it would result in EU sanctions and mandatory spending cuts, which the government hopes to avoid. If the 2005 deficit ends up at around 3.6 percent, as the government hopes, then it will be able to further reduce the deficit without resorting to unpopular spending cuts. Economy and Finance Minister Giorgos Alogoskoufis wants to cut the deficit further by strictly controlling the other ministries’ budgets, as well as those of public utilities, and by cracking down on tax evasion. He has already warned tax dodgers that an improved online information system will not let them get away. Even Alogoskoufis, however, is hedging his bets, recently declaring that the 2005 deficit will «certainly» end at below 4 percent of GDP. The higher the 2005 deficit ends up being, the more the likelihood of deep spending cuts. The tax bill will include cuts in the top two income tax rates – now at 40 percent and 30 percent, respectively – beginning on January 1, 2007. In that year, the top income tax rate will be reduced to 38 percent and the second highest rate to 29 percent. Alogoskoufis’s goal is for these rates to merge at 25 percent by 2010. It is not clear whether a single band will be established then or whether the lowest rate (15 percent) will be kept. The tax bill will also raise tax-exempt income to 12,000 euros from 11,000 actually. A major innovation is the automatic calculation of tax for single-income-source wage earners and pensioners, who will no longer be required to submit an income declaration form. Data on their income will be provided by employer payrolls and social security funds.