World Economy

Greek 'concrete' proposals: Tax hikes and pension reforms?

Greece at the crossroads
Greece at the crossroads
Greece imposes cash limits leaving country
Greece imposes cash limits leaving country
Why Greece's Tsipras needs a deal this week
Why Greece's Tsipras needs a deal this week

Greece is due to present "concrete" proposals to its international lenders on Thursday, which could include widespread tax hikes and a climb-down on pension reform.

This comes as time is fast running out for Greece, which was told this week that it had until Friday to produce a detailed reform plan that could be discussed—and potentially, endorsed—by a summit of all 28 member countries of the European Union on Sunday.

However, detailing reforms and spending cuts has proved easier said than done for Greek Prime Minister Alexis Tsipras and his far-left Syriza party, which won an election in January on an anti-austerity pledge. Reaffirming the popular opposition to austerity, 61 percent of Greeks voted against a bailout program that would entail more cuts in a referendum last Sunday.

A Greek flag flies outside the European Parliament in Brussels.
Francois Lenoir | Reuters

Yet, if Greece does not bow to lenders, it could be bankrupted and forced to leave the euro.

Here are some of the things to watch for in any proposal document from the Greek government on Thursday:

Tax hikes

Greek newspaper Naftemporiki reported that the Greek government could include tax hikes worth 10 billion euros ($11 billion) to 12 billion euros.

It noted that these could include an increase in corporate tax to 28 percent from 26 percent and a rise in the sales tax paid for a number of different products and services.

According to a Reuters report on Naftemporiki's article, the sales tax on luxury goods could be hiked from to 13 from 10 percent, while the sales tax on processed foods, restaurants, transport and some health services offered by the private sector could rise to 23 from 13 percent. It also said there could be a hike on hotel sales tax to 13 percent from 6.5 percent.

If these figures are borne out in proposals on Thursday, they would signal the government's willingness to compromise, while not completely giving in to creditors' demands. Creditors wanted like to see the sales tax in both hotels and restaurants—a major part of the Greek economy given the importance of the country's tourism industry—raised to the highest rate of 23 percent.

The report by Naftemporiki also said that Greek islands, which enjoy a 30 percent sales tax discount, would keep that tax break that lenders want to see scrapped.

Rania Antonopoulou, deputy minister of labor and social solidarity in Greece, told CNBC on Thursday that areas of society that hadn't contributed enough in the past, had to step up—seeming to confirm that tax rises were on the cards.

"The issue is to identify those taxes that would allow tax receipts to increase now," she told CNBC in Athens. "Whether the tax rate will be 23 percent or 27 percent on the private sector, that is a choice the government has to make."

"In terms of the measures we are willing to accept, we want social justice, in other words, those that have not carried enough of the burden that has fallen on our country, the time has come now to contribute," she added.

Greece's biggest issues were the taxation collection system and the "oligopolistic structures" that have dominated Greece in the past, Antonopoulou said.


Pensions cuts have been a sticking point for Greece and its lenders since negotiations started between Syriza and its partners five months ago. While lenders want to see the pension system reformed and pensions cut dramatically, Syriza has repeatedly refused to countenance the notion, saying it was a "red line" they would not cross.

However, new Finance Minister Euclid Tsakalatos, who replaced the more bombastic Yanis Varoufakis earlier this week, signaled on Wednesday that Greece could be ready to change its tune on pensions.

In a letter requesting a a three-year loan program from the European Stability Mechanism, Tsakalotos said that in return, the government would, "Implement a set of measures as early as the beginning of next week including: Tax reform-related measures; pension related measures."