Top rate tax rise proposed in talks with creditors

Greece proposed to its lenders on Tuesday raising its top rate of personal income tax to 50 percent in order to reach its bailout targets as the quartet displayed skepticism about plans to increase social security contributions to help make the pension system sustainable.

According to a high-ranking government official, the Greek side presented the institutions with a plan to increase the top rate of personal income tax from 42 to 50 percent, along with a series of other tweaks to the taxation system. The coalition believes this could raise some 300 million euros annually.

According to the government’s plan, there will be a single taxation system for employees, pensioners and the self-employed. Those earning up to 25,000 euros will pay 22 percent in tax, then the rate will rise to 32 percent for income between 25,001 and 42,000, 42 percent for 42,001 to 60,000 and to 50 percent for earnings above 60,000 euros.

During Tuesday's talks, which involved Labor Minister Giorgos Katrougalos, Finance Minister Euclid Tsakalotos and Economy Minister Giorgos Stathakis, the representatives of Greece’s lenders raised objections to the government’s plans to increase social security contributions by 1.5 percentage points in order to raise some 550 million euros and reach the target of 1.8 billion in annual savings requested by the institutions.

The representatives of the European Commission, International Monetary Fund, European Central Bank and European Stability Mechanism suggested that the increase in contributions could damage the competitiveness of the Greek economy.

Although the creditors did not spell it out in Tuesday's first meeting with Katrougalos (a second is due to follow on Wednesday), their stance suggested that the government will have to make cuts to existing pensions.

The Labor Ministry has already worked on plans for reductions to supplementary pensions above 170 euros a month. Some very high basic pensions could also be slashed, with Katrougalos setting a ceiling of 2,300 euros a month.

Prime Minister Alexis Tsipras aims to raise the issue of the bailout negotiations with German Chancellor Angela Merkel on the sidelines of an international conference on Syria in London on Thursday.

It is thought that the Greek prime minister will ask Merkel to help ensure that the lenders’ demands are not too onerous and that the bailout review can be completed soon. Tsipras is due to meet a number of other leaders in London but those talks will focus on the refugee crisis.