Posted on: 09/Nov/2009
A one-off wealth redistribution
An unemployed woman displays the contents of her wallet.
AN UNPRECEDENTED measure to fund one-off cash handouts to the country’s poorest households - by means of taxing the biggest companies and landowners - was met on November 3 with unanimous applause from business barons and workers alike.
“The business class knows better than anyone that the economy is in a state of emergency and has therefore declared its willingness to contribute with an extraordinary levy to the necessary effort to confront our fiscal derailment,” said Dimitris Daskalopoulos, president of the Federation of Enterprises and Industries (SEV), Greece’s leading employers’ union. “If we don’t run up the hill together, the slide will pull us back down. We should therefore give a hand to climb this uphill road.”
The Pasok administration had pledged 1-billion-euros worth of so-called solidarity support to low-income earners in the run-up to the October 4 elections without clarifying the source of the funding.
With the economy entering a prolonged recession, the government of George Papandreou has swollen its forecast of a budget deficit for 2009 to 12.5 percent of GDP, while the EU pegged the figure at 12.75 percent for both this year and 2010. Therefore, the ruling socialists want to honour their promise to help low-income households by redistributing income from the wealthy, without adding to an already upended public expenditure budget.
The extraordinary “solidarity levy” will apply on 2008 pre-tax earnings of the 300 biggest companies in Greece, and will range from 5 to 10 percent of gross profits, depending on the size of those proceeds. The special levy will be coupled with higher taxes on rentiers with large real estate holdings, which means that property worth more than 600,000 euros will face higher rates.
“It is the first measure of support for family budgets and low incomes,” Finance Minister Yiorgos Papakonstantinou told reporters. “It will be complemented by household-debt relief already underway and other bills to support the unemployed and troubled businesses.”
No government likes to take one-off measures, “but the situation is very difficult,” Papakonstantinou said after a cabinet meeting on November 3. “Given the extremely difficult fiscal situation, it would not be responsible to make such an intervention by widening the deficit.”
About 140 businesses with pre-tax earnings of 5- to 10-million euros in 2008 will face a 5 percent one-off tax, while another 85 firms with profits of 10- to 25-million euros will be charged a 7-percent tax rate. For those with pre-tax earnings of more than 25 million euros, the tax rate will be 10 percent.
The time is now
“Some 300 companies and banks in the last five years benefited from a reduction in tax rates,” Papakonstantinou said. “Now is the moment for them to participate in social solidarity.”
The companies likely to pay the one-off levy include many of Greece’s top banks, industrial firms and retailers, according to a list prepared by market researchers ICAP.
The 1 billion euros of support will relieve about 2.5 million low-income individuals, mostly pensioners, the long-term unemployed and low-income households with one or more dependent children, the minister said.
Most of the proceeds from the levy, 870 million euros, will come from the extraordinary corporate tax levy, while the rest will be collected next year from an increase in tax on individual properties worth more than 600,000 euros owned by individuals.
Greek share prices were unchanged on the news in anticipation of the announcement and followed the overall stable trend in European markets.
Greece has been running budget deficits above the EU’s ceiling of 3 percent of gross domestic product in 2007 and 2008, and in October more than doubled its deficit forecast for this year to 12.5 percent - the highest in the 27-nation bloc.
Greece raised 7 billion euros from a benchmark 15-year bond issue on November 3, covering most of an extra 8 billion euros the country’s debt management agency (PDMA) said Greece would need this year. The latest loans have raised the public sector.
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