New Tax in Greece Comes Up Wildly Short of Revenue Expectations

New Tax in Greece Comes Up Wildly Short of Revenue Expectations

It seems that across Europe, we're finally getting some insight on the effects of austerity, and what we're not finding are any success stories. From Greece to Ireland, bond spreads are blowing out back to old levels.

August 23, 2010

Kathimerin - As the government spokesman doused mounting speculation about a new round of austerity measures over the weekend, Finance Ministry statistics indicated that the original measures — tax hikes coupled with wage drops — have failed to boost badly dwindling state coffers.

“Those resorting to idle speculation about new measures... should realize that in the best-case scenario they are misleading the Greek people,” Giorgos Petalotis said on Saturday, warning that “such scaremongering could have adverse effects on the major national effort being made by the Greek people and the government to revive the economy and bring about much-needed change.”

In a clear dig at the main opposition New Democracy and other smaller parties that have been relentless in their condemnation of the government’s response to the debt crisis, Petalotis suggested that the critics “seek to score points on less dangerous ground.”

Earlier on Saturday, ND spokesman Panos Panayiotopoulos had spoken of a “revised memorandum that would bring even harder times,” referring to an agreement signed in May between the Greek government, the European Commission, the European Central Bank and the International Monetary Fund. Yesterday Panayiotopoulos made another statement.

“The developments of the past few days indicate that the government has decided on a new assault against households and businesses,” he said without specifying what developments he was referring to.

As the government and opposition argued about whether or not new measures are on the cards, Finance Ministry figures indicated that an original austerity program of tax hikes and salary cuts had failed to bring in the projected revenue.

An increase in the tax on tobacco, for example, brought in an additional 250 million euros in the first six months of the year, far below the target of 1.13 billion euros. Overall increases in the tax on tobacco, fuel and alcohol are believed to have failed to hit the target due to the parallel wage cuts, which have led to a plunge in consumer spending.

Experts estimate that losses to state revenue because of the slump in consumer spending will amount to 2 billion euros by the end of the year.