December 4, 2012 / 9:12 PM / 5 years ago

Greek PM rules out top tax rate on middle incomes

4 Min Read

ATHENS (Reuters) - Greek Prime Minister Antonis Samaras on Tuesday dismissed talk his government would slap a top tax rate on middle incomes in an effort to bridge a rift in his ruling coalition over a tax reform bill demanded by the country's foreign lenders.

Leaks in the Greek press had the government planning to apply a 45 percent top tax rate on incomes above 26,000 euros - from 100,000 euros currently - and abolish tax credits for dependent children.

The leaks have deepened anger among a public worn down by five years of recession and repeated rounds of wage and pension cuts to shore up state finances and cut budget deficits.

A cartoon in one newspaper portrayed Finance Minister Yannis Stournaras as Herod, ready to chop income tax exemptions for families with children.

"I am with the middle class, not against it," Samaras told a business conference. "There is no such thing -- taxing those making over 25,000 euros annually by 45 percent."

He said the government would allow tax credits for each child based on income criteria, aiming to support households with greater needs.

"The incomes of wage earners and pensioners up to 25,000 euros annually will have tax relief with new tax rates," he said. "Our goal is to have lower tax rates but we will get there gradually," he said.

Samaras also said that after the debt buyback scheme is completed, a "difficult" project, the government would focus on attracting investments.

The European Union and International Monetary Fund have told Greece it must simplify a tax administration seen as corrupt and ineffective before they can disburse about 9 billion euros ($12 billion) in aid early next year.

Athens is also under orders to increase revenue by closing tax loopholes and broadening the tax base to include notorious tax dodgers such as doctors, lawyers and the self-employed.

Samaras's coalition allies have threatened to block the deal in parliament, saying it would further strain honest taxpayers instead of cracking down on wealthy tax evaders.

Earlier on Tuesday, Samaras summoned Deputy Finance Minister George Mavraganis and other ministry officials for a second meeting in as many days after repeated failures to agree on who should be taxed more and by how much.

The new tax system must also generate about 1.1 billion euros of additional revenues from 2014, as part of a 13.5 billion euro austerity package that Greece passed last month to comply with the terms of its bailout.

Greece's central bank said in a report on Monday that average citizens were already taxed excessively. According to Greece's statistics agency ELSTAT, taxes soared by 37 percent from last year.

Samaras said the government was aiming at a steady and simple tax system that would not undermine economic competitiveness.

He said the total tax burden on businesses, including retained and distributed profits, would eventually fall to below 30 percent from 34 percent currently.

Finance Minister Yannis Stournaras is expected to meet coalition party negotiators on Wednesday to discuss the bill before releasing it for public consultation.

Socialist leader Evangelos Venizelos said the bill was a litmus test for the six-month old government whose majority slid to 166 seats in the 300-strong assembly after it passed the austerity cuts.

"We mustn't make mistakes that will bring us face to face with Greek society," Venizelos said of the tax reform bill on Monday.

Reporting by George Georgiopoulos and Karolina Tagaris; Editing by Rosalind Russell

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