Greece, troika agree on lower VAT rate: report

Reuters News
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Posted: May 31, 2011 2:52 PM
Greece, troika agree on lower VAT rate: report

By George Georgiopoulos

ATHENS (Reuters) - Greece and a team of EU, IMF and ECB inspectors reviewing the country's economy have agreed on a value-added tax cut to help achieve a broader political consensus on more austerity, a Greek newspaper said on Tuesday.

Financial daily Imerisia said Athens had the green light from the "troika" team to lower the upper rate of VAT to 20 percent from 23 percent to get the conservative opposition to agree on further measures to cut the budget deficit.

The lower rate applied to items such as food would fall to 10 percent from 13 percent, it said in an unsourced report.

The Finance Ministry declined to comment. "We do not comment as long as the talks with the troika are ongoing," a ministry spokeswoman said.

The troika is expected to complete its mission to Athens late this week and then produce its review of the government's progress toward lowering the huge budget deficit.

Its report will determine whether Athens gets the next 12 billion euro tranche in June under a 110 billion euro ($158 billion) rescue which Greece took from the European Union and International Monetary Fund last May.

Prime Minister George Papandreou is seeking broad political agreement on measures to tackle Greece's crisis and prevent Athens from defaulting on its debt. But on Monday conservative leader Antonis Samaras demanded tax cuts as the price for a consensus deal with the Socialist government.

Papandreou's PASOK party holds a comfortable parliamentary majority, but international lenders want all leading parties to support the austerity measures they have set as a condition for loans. Politicians in Portugal, another aid recipient, have accepted similar conditions.

The conservative New Democracy party, which voted against the bailout agreed last May to avoid default, has been pressing for lower taxes to help boost economic activity, arguing that the policy mix applied so far is choking the economy.

Samaras did not make detailed demands on Monday, although he did call for a 15 percent flat rate of corporate tax.

FALLING SHORT

Government spokesman George Petalotis poured cold water on the opposition demands, saying the government could not put its budget targets at risk.

Greece has fallen short of its deficit-reduction goals, raising the risk further IMF/EU funds will not be forthcoming and that it might default on its 327 billion euro debt, which is equal to about 150 percent of its annual economic output.

Moves to plug a looming funding gap for 2012 and 2013 became more urgent after the IMF said last week it would withhold the next tranche of aid due on June 29 unless the EU guarantees to meet Athens' funding needs for next year.

The daily Ethnos also reported that apart from lowering VAT rates, the government wants to exclude those on employment contracts -- rather than self-employed -- and pensioners from its plan to cut the current 12,000 euro income tax exemption.

"The government is seeking to avoid a new hit on the incomes of vulnerable groups and achieve political consensus at least with the main opposition party, which is something the EU and the IMF are pressing for," the paper said.

(Reporting by George Georgiopoulos; Editing by Catherine Evans)