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Greece Brings Forward Corporate Tax Cuts

by Ulrika Lomas,, Brussels

16 September 2010

During a recent keynote speech on the economy in Thessaloniki, Greek Prime Minister George Papandreou ruled out the introduction of further austerity measures, and announced plans to cut the tax rate on companies’ retained profits from 24% to 20% from next year – ahead of schedule. Determined to reassure an anxious public, Papandreou also announced that Greece was on track to meet its 40% deficit reduction target this year.

Initially due to be implemented in 2014, the planned cuts were brought forward in a desperate bid to provide some consolation and relief to businesses buckling under the weight of recession.

However, amid a deepening recession and high unemployment, emotions are running high and there are fears of a new wave of unrest. Among unions there is bitter anger at the government’s austerity measures, which include huge spending cuts and tax increases, and the threat of further strikes.

Determined to secure the EUR110bn three-year bailout package agreed with the European Union and the International Monetary Fund in Brussels, the Greek parliament approved a bill introducing a new wave of austerity measures back in May, including plans to raise the value-added tax rate to 23%, and to increase the tax levied on fuel, alcohol and tobacco by 10%. The legislation also provided for a windfall tax on 2010 corporate profits, starting at a rate of 4% on profits up to EUR300,000, and rising to 10% on profits of more than EUR5m.

Other initiatives contained in the bill included plans to freeze public sector pay until 2014, to increase the average retirement age by two years, and to cut public sector wages and pensions. Defending the government’s austerity measures at the time, Greek Finance Minister George Papaconstantinou warned that they are unavoidable if Greece is to avoid bankruptcy.

The measures are designed to drastically reduce the country’s public deficit from a predicted 8.1% this year to below 3% of GDP by 2014.

TAGS: tax | business | pensions | fiscal policy | retirement | corporation tax | unemployment | legislation | tax rates | Greece

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