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Greek Cabinet Approves 2011 Budget

by Ulrika Lomas,, Brussels

08 October 2010

During a recent council of ministers meeting, the Greek government adopted its ambitious 2011 budget bill, designed to reduce the public deficit and provide for a number of fiscal measures.

Surpassing all expectations and going beyond all requirements, the government now aims to reduce the country’s public deficit to 7% of gross domestic product (GDP) next year, significantly lower than the 7.6% figure fixed under the terms of its EUR110bn loan agreement with the International Monetary Fund and the European Union (EU). This latest decision is based on better than expected results from the 2010 budget, due to achieve a budget deficit of 7.8% this year instead of 8.1% as initially predicted.

Greece’s impressive deficit reduction this year is due to both the dramatic cuts in spending on investment and on public sector pay and to additional fiscal revenues yielded from tax rises, which include a rise in property tax, an increase in the tax levied on alcohol and tobacco and a rise in value-added tax (VAT). However, the 4% rise in the standard rate of VAT, from 19% to 23%, only served to generate 3.4% of additional revenues for the government between January and August, much lower than the 13.7% it had forecast.

The government’s 2011 budget is marked by further austerity measures, and heavily supported by income from property tax, from new charges applying to gambling licences and from an extension of the windfall tax imposed on companies with earnings of more than EUR100,000 per year into 2011. The government is also proposing to increase the reduced rate of VAT from 11% to 13% in certain instances, a measure that is expected to generate EUR1bn.

Although Greek Finance Minister George Papaconstantinou had considered the idea of raising indirect taxes again next year, he eventually ruled this out, aware that it could plunge the country yet further into depression. Instead, the minister is relying on improved collections, on clamping down on tax evasion and on the recently agreed amnesty, expected to generate EUR30bn in back taxes.

Greece has long since struggled to collect taxes and social security contributions from its citizens. Indeed, revenue from taxes is among the lowest in the EU, standing at 32.6% of GDP compared with the EU average of 39.3%.

TAGS: tax | economics | value added tax (VAT) | property tax | fiscal policy | gambling tax | budget | corporation tax | gambling | social security | Greece | European Union (EU) | Europe

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