Greece Announces New Tax as Unrest Flares

The Wall Street Journal

Property Levy Aims to Close Budget Gap

THESSALONIKI, Greece—The Greek government said Sunday it will impose a new property tax to cover a €2 billion ($2.7 billion) shortfall in budget targets this year, which it has promised its international creditors in exchange for receiving fresh aid.

In a news conference, Finance Minister Evangelos Venizelos said the property tax, which will be imposed over the next two years, was decided by an extraordinary cabinet meeting and comes amid growing fears of a Greek default in the weeks ahead.

"We need about €2 billion and a bit for us to cover our goals" for this year, Mr. Venizelos said, insisting the government would meet its deficit goals of €17.1 billion in 2011 and €14.9 billion next year.

"We have to find something that is fair, something that will be accepted by the community…something that can be implemented quickly, that will produce results immediately," he added. "The only measure that has all those characteristics, that can be universally applied, but which is just with social characteristics, is a special property tax."

He said the tax, which will be collected through monthly electricity bills, would average about €4 per square meter and range between 50 cents and €10 depending on the neighborhood.

His remarks come as Greece's embattled government scrambles to cut public spending and step up its reform drive amid ultimatums from other euro-zone governments that further rescue money will be withheld if Athens doesn't deliver on promises.

Earlier this month, talks between Greece and officials from the European Commission, International Monetary Fund and European Central Bank—which assess the country's eligibility for fresh aid—were suspended in a dispute over whether Greece would need to take further measures.

Without the aid, Greece is expected to run out of money within weeks, according to senior Greek officials.

To convince both the so-called troika and its European partners of its commitment to step up the pace of reforms, the government also decided to expedite the parliamentary vote on its 2012 budget, Mr. Venizelos said.

The draft budget will be submitted to parliament on the first Monday in October—as foreseen by the Greek constitution—and will be voted on by the end of October.

Under normal procedures, Greece's parliament usually votes on a new budget at the end of December. Concurrently, parliament will also vote on a plan to overhaul Greece's tax system, Mr. Venizelos said.

In a symbolic move, the cabinet also agreed to cut wages on all senior elected and appointed government officials ranging from Greece's president to the country's 325 local mayors, and including regional governors, government ministers and members of parliament.

"We also have to send a message that also shows a sense of discipline," said Mr. Venizelos. "The unanimous decision of the cabinet was to cut one month's salary for elected and appointed officials."

In his remarks, Mr. Venizelos also said the economy—now in its third year of recession—would contract by 5.3% this year, worse than an initial forecast of 3.9%.

Greece's government has been reluctant to take new austerity measures that would deepen the recession, which it blames for its inability to meet this year's deficit target of 7.6% of gross domestic product.

It forecasts a deficit of around 8.2% of GDP, and argues that existing measures are enough to close the gap.

The troika sees the deficit at 8.8% this year and is asking Greece to take an additional €1.7 billion of new austerity measures.

But the government is also balancing anger on the streets. On Saturday, thousands of Greek workers, students and ordinary citizens angry over the reforms protested in Thessaloniki.

Those protests turned violent when several hundred of those demonstrators clashed with riot police who fired tear gas to drive back the protesters, which included labor unions, students, anarchists, taxi owners and even fans of a local sports club.

Police say that more than 21,000 people took part in the demonstrations and they have held 94 people and made at least two arrests relating to the protests.

Write to Alkman Granitsas at alkman.granitsas@dowjones.com