Identifier
Created
Classification
Origin
05ATHENS892
2005-04-01 10:50:00
UNCLASSIFIED
Embassy Athens
Cable title:
VAT, CIGARETTE AND ALCOHOL TAX HIKES TO BRING DOWN
how-toThis record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS ATHENS 000892
SIPDIS
TREASURY FOR IMI
COMMERCE FOR 4212/ITA/MAC/EUR/CALVERT
E.O. 12958: N/A
TAGS: ECON EFIN GR
SUBJECT: VAT, CIGARETTE AND ALCOHOL TAX HIKES TO BRING DOWN
RUNAWAY DEFICIT
SUMMARY:
On March 30, the GoG announced an immediate increase in
VAT rates as well as taxes on alcohol and cigarettes as part
of a series of measures designed to help Greece meet the EC's
2006 deadline for bringing its deficit under three percent of
GDP. A one percentange point increase in the VAT rate for
most goods (from 18 to 19 percent) combined with increased
excise taxes on cigarettes and alcohol and income from
privatization is expected to generate enough income for
Greece to meet the EC's deficit target. The government
insists that the VAT and excise tax increases will be the
last for the foreseeable future. Consistent with its policy
of "mild adjustment", the government has promised that no
cuts would be made on health, education and other social
expenditures. End Summary.
VAT Increases
--------------
On March 30, Minister of Economy and Finance Alogoskoufis
revealed Greece's updated Growth and Stability program for
2005-2007. A combination of VAT and excise tax increases and
anticipated income from privatization, totaling about 4.1
billion euros (about 3.1 percent of GDP),is expected lower
Greece's budget deficit from the current 6.1 percent of GDP
to 3.5 percent in 2005 and 2.8 percent in 2006. About 1.5
billion euros are expected to be generated from VAT
increases. Effective as of April 1, the standard VAT rate
for most goods, now 18 percent, will rise to 19 percent. VAT
on food, fuel, medicine and various services (i.e., public
transportation and hotel costs) will go up from 8 to 9
percent. The lowest VAT rate of 4 percent, applied to
newspapers, books and the sale of cinema and theater tickets,
will go up to 4.5 percent.
--and "Sin" Taxes
--------------
A 65 percent increase in the tax on cigarettes is
projected to yield to 375 million euros in 2005-2006.
Foreign cigarette manufacturers fear that the tax will
increase the demand for low priced, mostly domestic brands
(selling for about one euro per pack) as opposed to more
expensive imported bands, selling for up to 3 euros a pack.
Foreign cigarette manufactures (Phillip Morris and
Britsh-American Tobacco) claim about 60 percent of the Greek
market, but are losing ground to cheaper domestic brands and
contraband cigarettes. Phillip Morris recently introduced
its own low-priced "Next" brand to counter the competition.
The excise tax on most alcoholic beverages will increase
by 20 percent, yielding about 80 million euros of revenue in
2005-2006. The tax doens not apply to wine and beer. An
increase of only 10 percent will be applied to traditional,
locally produced Greek beverages (ouzo, tsipouro, and
tsikoudia).
SIPDIS
Cumulatively, the revenues from VAT and excise taxes
amount to 2.67 billion. The GoG expects to earn an
additional 1.5 billion euros from anticipated privatizations
and certain expenditure cuts (such as the elimination of the
public investment program),bringing the total to just over
4.1 billion - enough to allow Greece to meet the three
percent budget cap by 2006 if all else remains the same. The
government has assured the public that no major cuts would be
made in health, education and social insurance programs.
Comment
--------------
The government's revenue measures have encountered
(predictable) sharply negative reactions from the PASOK
opposition and the trade unions - not to speak of the average
Greek consumer. (Greeks are the world's heaviest smokers
after the Cubans). In spite of the grumbling, many
understand that that tax measures were inevitable and the
result of pressure from the EC. Most Greek officials are
confident that the Ecofin will accept Greece's revised
Stability and Growth program, especially since the country
has bitten the bullet and complied with the EC's
recommendations for increased taxes. The risk for the Greek
economy, according to some observers, is that rising the VAT
and indirect taxes could boost inflation and slow down
economic growth. (The GoG is hoping to achieve a 3.9 growth
rate this year.) There is also concern that wholesalers and
retailers and will use the tax hikes as an excuse to raise
prices beyond what is required. End Comment.
SIPDIS
TREASURY FOR IMI
COMMERCE FOR 4212/ITA/MAC/EUR/CALVERT
E.O. 12958: N/A
TAGS: ECON EFIN GR
SUBJECT: VAT, CIGARETTE AND ALCOHOL TAX HIKES TO BRING DOWN
RUNAWAY DEFICIT
SUMMARY:
On March 30, the GoG announced an immediate increase in
VAT rates as well as taxes on alcohol and cigarettes as part
of a series of measures designed to help Greece meet the EC's
2006 deadline for bringing its deficit under three percent of
GDP. A one percentange point increase in the VAT rate for
most goods (from 18 to 19 percent) combined with increased
excise taxes on cigarettes and alcohol and income from
privatization is expected to generate enough income for
Greece to meet the EC's deficit target. The government
insists that the VAT and excise tax increases will be the
last for the foreseeable future. Consistent with its policy
of "mild adjustment", the government has promised that no
cuts would be made on health, education and other social
expenditures. End Summary.
VAT Increases
--------------
On March 30, Minister of Economy and Finance Alogoskoufis
revealed Greece's updated Growth and Stability program for
2005-2007. A combination of VAT and excise tax increases and
anticipated income from privatization, totaling about 4.1
billion euros (about 3.1 percent of GDP),is expected lower
Greece's budget deficit from the current 6.1 percent of GDP
to 3.5 percent in 2005 and 2.8 percent in 2006. About 1.5
billion euros are expected to be generated from VAT
increases. Effective as of April 1, the standard VAT rate
for most goods, now 18 percent, will rise to 19 percent. VAT
on food, fuel, medicine and various services (i.e., public
transportation and hotel costs) will go up from 8 to 9
percent. The lowest VAT rate of 4 percent, applied to
newspapers, books and the sale of cinema and theater tickets,
will go up to 4.5 percent.
--and "Sin" Taxes
--------------
A 65 percent increase in the tax on cigarettes is
projected to yield to 375 million euros in 2005-2006.
Foreign cigarette manufacturers fear that the tax will
increase the demand for low priced, mostly domestic brands
(selling for about one euro per pack) as opposed to more
expensive imported bands, selling for up to 3 euros a pack.
Foreign cigarette manufactures (Phillip Morris and
Britsh-American Tobacco) claim about 60 percent of the Greek
market, but are losing ground to cheaper domestic brands and
contraband cigarettes. Phillip Morris recently introduced
its own low-priced "Next" brand to counter the competition.
The excise tax on most alcoholic beverages will increase
by 20 percent, yielding about 80 million euros of revenue in
2005-2006. The tax doens not apply to wine and beer. An
increase of only 10 percent will be applied to traditional,
locally produced Greek beverages (ouzo, tsipouro, and
tsikoudia).
SIPDIS
Cumulatively, the revenues from VAT and excise taxes
amount to 2.67 billion. The GoG expects to earn an
additional 1.5 billion euros from anticipated privatizations
and certain expenditure cuts (such as the elimination of the
public investment program),bringing the total to just over
4.1 billion - enough to allow Greece to meet the three
percent budget cap by 2006 if all else remains the same. The
government has assured the public that no major cuts would be
made in health, education and social insurance programs.
Comment
--------------
The government's revenue measures have encountered
(predictable) sharply negative reactions from the PASOK
opposition and the trade unions - not to speak of the average
Greek consumer. (Greeks are the world's heaviest smokers
after the Cubans). In spite of the grumbling, many
understand that that tax measures were inevitable and the
result of pressure from the EC. Most Greek officials are
confident that the Ecofin will accept Greece's revised
Stability and Growth program, especially since the country
has bitten the bullet and complied with the EC's
recommendations for increased taxes. The risk for the Greek
economy, according to some observers, is that rising the VAT
and indirect taxes could boost inflation and slow down
economic growth. (The GoG is hoping to achieve a 3.9 growth
rate this year.) There is also concern that wholesalers and
retailers and will use the tax hikes as an excuse to raise
prices beyond what is required. End Comment.