In an attempt to rein in the shadow economy and collect more tax revenue, Greece outlaws cash transactions greater than 1500 Euros. Please consider Greek Finance Minister unveils tax reform, wage policy.

“From 1. Jan. 2011, every transaction above 1,500 euros between natural persons and businesses, or between businesses, will not be considered legal if it is done in cash. Transactions will have to be done through debit or credit cards”

“There’s tax relief for incomes up to 40,000 (euros)”

“Taxable income based on the new scales will include capital gains from the short-term trading of stocks”

“Deposits in banks outside Greece are exempted from audits of their origin if they are repatriated within six months of the passing of the tax bill and are taxed with a 5 percent rate”

“Wages of board members in unlisted state companies will fall by 50 percent”

“The budget bill for allowances and compensations will be cut by 10 percent”

Buy It Now

Everyone in Greece will quickly figure out that the time to make major purchases is now. So expect to see sales plunge starting January 1, 2011 as demand for everything priced above 1500 euros shifts forward.

New 40% Tax Rate

In addition, attempts to collect more sales taxes (VAT), Greece to levy 40% tax rate on more earners.

Greece will lower the current 75,000 euro income threshold that is subject to a 40 percent tax rate as part of reforms to urgently boost government revenues, the country’s finance minister said on Monday.

“The 40 percent tax rate will be applied on income levels that are lower than what is the case today, but there will also be intermediate rates that will provide relief for low and middle incomes,” Finance Minister George Papaconstantinou told Ta Nea newspaper in an interview.

He said that as a result of the tax changes, the biggest burden would be felt by a small percentage of tax payers as 95 percent of earners report incomes below 30,000 euros a year.

Retirement Age, Fuel Taxes Rise

Please consider Greece raises retirement age and fuel taxes a day ahead of nationwide civil service strike.

Prime Minister George Papandreou told a cabinet meeting that the reforms “must go ahead now … with greater speed.”

“Our primary duty now is to save the economy and reduce the debt, aiming to do so through the fairest possible solutions that will protect — as far as that is possible — the weaker and middle classes,” said Papandreou, who is to meet in Paris with French President Nicolas Sarkozy on Wednesday ahead of a European Union summit the following day.

The new tax bill, Papaconstantinou said, will increase the burden on the rich while easing taxation for those on low incomes. The top income bracket which will be taxed by the maximum 40 percent will be expanded to include incomes of over euro 60,000 a year, from the current euro 75,000 threshold.

Papaconstantinou said that public consultation over the tax bill continued, and that there could be changes, but that any amendments would be based on the broad principles outlined in the draft.

He confirmed plans to freeze public sector hirings and wages, while cutting bonuses or stipends by 10 percent, a move he said would trim between euro18 and euro345 euros off monthly salaries. The stipend cut will also apply to those of the prime minister, ministers and other high-ranking ministry officials.

“We all know that the civil service salary system is one full of injustices, that lacks any central logic and has evolved with successive bonus payments,” Papaconstantinou said. “We are committed to have a unified payment system.”

He also said all Greeks must collect receipts in order to qualify for the income tax-free amount of euro12,000 — an attempt to crack down on widespread tax evasion, where vendors under-declare their income by not giving receipts. Cash registers will have to be installed everywhere, including kiosks found on practically every Greek street, and food markets.

Pensions Increase

In a move that makes little economic sense in light of attempted austerity measures everywhere else, Greece to grant pension increases of 1.5 pct.

“All pensions will increase by 1.5 percent,” Finance Minister George Papaconstantinou said in a television interview.

The government did not intend to raise the nation’s top 40 percent income tax rate as part of measures to shore up its finances, he said.

I have little faith this will work because revenue projections are sketchy and austerity measures will undoubtedly plunge Greece into a severe recession, if not depression.

Will Greece have the resolve to cut more if necessary? Will France and Germany pony up after a “good faith” try by Greece?

In light of Eurogroup Chairman Jean-Claude Juncker’s Grecian Bluff, there are still more questions than answers. The EU simply has no plans if Greece fails.

Mike “Mish” Shedlock
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