Greek PM unveils tax cut ahead of vote on job losses

By Karolina Tagaris

ATHENS | Wed Jul 17, 2013 10:17am EDT

(Reuters) - Prime Minister Antonis Samaras announced Greece's first major tax cut since its crisis began nearly four years ago, highlighting a hard-won concession just hours before lawmakers vote on a bill to eliminate thousands of public sector jobs.

Wednesday's move appeared designed to placate protests against the latest reforms and an increasingly restive mood among Greeks grappling with a 27 percent jobless rate and falling living standards.

"Despite the difficulties, important and significant things are taking place in our country," Samaras said in a surprise television address, announcing that value-added tax (VAT) in restaurants, which was raised to 23 percent in 2011, would be cut to 13 percent from August 1.

"We will not relax. We will continue climbing up the hill, we will reach the top, which is not far, and better days will come for our people," he said.

Samaras' address to the nation came just hours before parliament votes on a divisive reform bill agreed with European Union and International Monetary Fund lenders as a condition for securing the next tranche of 7 billion euros ($9.20 billion) in aid.

Despite losing an ally last month over his abrupt decision to take the state broadcaster off air and fire its 2,600 staff, Samaras enjoys a thin majority of five seats in parliament and his government is expected to scrape through the vote.

The multi-pronged bill includes plans for a public sector transfer and layoff scheme which mainly affects school teachers and municipal police as well as a luxury tax on houses with swimming pools and owners of high performance cars.

Even though Greece's public sector is widely seen as oversized, inefficient and filled with patronage hires, the layoff scheme has drawn protests from workers.

Uniformed municipal police, garbage collectors in orange vests and hundreds of other public sector workers have taken to the streets of Athens almost daily on motorbikes in over a week of rallies, blowing whistles, honking horns and blaring sirens.

Roads near parliament were cordoned off ahead of protests expected later on Wednesday.

DIFFICULT MISSION

Athens, which has been limping along on two bailouts worth over 240 billion euros ($315 billion) since 2010, has imposed a series of wage cuts and tax rises in return for the aid, deepening a recession now in its sixth year.

Its civil service reforms call for placing 25,000 workers into the layoff scheme by the end of 2013, giving them eight months to find another position or get laid off. Public sector workers have until now been protected by the constitution from being fired.

"Our mission will not be easy," Kyriakos Mitsotakis, the newly-appointed administrative reform minister tasked with overhauling the 600,000-strong public sector told a parliamentary session. "But I'm certain the silent majority of citizens hope (the reforms) succeed."

The government had made a show of arguing for the restaurant VAT cut during its latest talks with the troika of foreign lenders, and officials previously confirmed that lenders had agreed to the demand.

Samaras said the cut would help curb tax evasion, a major problem in the country and one of the reasons it slid into a debt crisis in 2009, but warned that if tax evasion persisted the VAT would revert to 23 percent.

"The crucial thing is that it was announced now and not after the summer," said Thomas Gerakis, head of Marc Pollsters. "How it will benefit consumers remains to be seen."

($1 = 0.7612 euros)

(Additional reporting by Renee Maltezou and Angeliki Koutantou; editing by Deepa Babington and Jason Neely)