Greece unveils massive reforms

AP

SWEEPING REFORMS: Greece's Finance Minister George Papaconstantinou addresses the media during a press conference in Athens.

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Greece unveiled sweeping proposals Tuesday to increase retirement ages, hike taxes on the Church and force street vendors to issue receipts, in a bid to appease EU partners and markets alarmed by the country's debt crisis.

On the eve of a nationwide strike against civil service wage freezes, officials pledged to accelerate reforms meant to prick a ballooning deficit and cut debilitating borrowing costs.

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.

Under intense pressure from the EU and market speculation, Papandreou's centre left government has committed to a four-year austerity plan.

"I believe that our European partners, the markets and above all, Greek citizens, are watching the implementation of the program the government has announced," Finance Minister George Papaconstantinou said during a news conference to present his draft tax bill. "They are waiting to see whether Greece will really do what it must do. And we are proving, with our daily actions, that things that we announced some time ago are becoming reality."

The budget deficit stood at 12.7 percent of annual economic output in 2009, more than four times the limit allowed by the EU, while the public debt has exceeded 113 percent of GDP. Combined with the country's ever-increasing borrowing costs, this has raised fears of a protracted crisis with contagion to other troubled EU economies such as Portugal and Spain, and pushed down the euro exchange rate.

Some experts have said Greece could need a bailout - but EU and Greek leaders resist the idea, and Athens insists it can weather the storm alone.

The government has announced €2 billion ($NZ3.97b) in public spending cuts so far, and hopes to raise more than €5 billion from extra taxes and fighting endemic tax evasion.

However, Papandreou's Socialists, elected four months ago, have shied at further salary cuts or layoffs in the civil service, which employs some 750,000 people - all guaranteed lifetime jobs.

The reforms announced so far have angered powerful labour unions, and civil servants have called a nationwide strike Wednesday.

The walkout will affect state schools, hospitals, tax offices and local government offices, while all Greek airports will be closed to international and domestic flights. Private sector workers will walk off the job on February 24.

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 €60,000 a year, from the current €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 €18 and €345 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."

- AP