Tax hikes may still fail to fix Athen's debts crisis
GREEK tax increases, which have sparked widespread protests, may fail to generate as much additional revenue as the government in Athens estimates, a draft EU report says.
While the €4.8bn of additional austerity measures enacted by the Greek parliament last week "appear sufficient to safeguard the 2010 budgetary targets", risks remain that increases in value-added tax and fuel taxes may generate less than is projected, the report says.
The Greek government plans to cut the deficit to 8.7pc of gross domestic product (GDP) this year from 12.7pc in 2009. The draft report will be discussed by EU finance ministers in Brussels next week.
An increase in the main VAT rate by 2pc from 19pc will bring in €1.3bn in added revenue this year, while higher excise duties on petrol and diesel are expected to generate €450m more, according to the finance ministry in Athens.
But "the implications on tax revenue of a contraction in demand should not be underestimated", according to the European Commission.
On VAT, it said "changes in the tax base -- in relation to the contraction of internal demand -- and tax evasion may result to lower-than-expected gains".
Greece's overall government debt "remains on a steep upward path", according to the commission. Greek debt is projected to swell to 125pc of GDP this year, the highest in the 27-nation EU, it forecasts.
EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that the latest measures put Greece on "the path of fiscal adjustment for 2012" -- the deadline to meet the EU's 3pc deficit limit. (Bloomberg)