The Real Key to Athens Getting a Third Bailout? Greek Farmers.
Greek lawmakers are resisting a tax hike on farmers, something the IMF, the ECB, and the European Commission say is necessary to get a third bailout.
Greek Prime Minister Alexis Tsipras delayed a vote on a series of reforms Tuesday to potentially pave the way for a third bailout as large as 86 billion euros, or $94 billion. The package is missing a provision that his creditors say is key to Greece getting the cash it needs to stay solvent: a tax hike on farmers.
Greece’s agricultural sector has gotten a tax break for years. Farmers pay a 13 percent income tax rate, compared with a 25 percent tax other Greeks pay. Now Athens’ creditors — the European Commission, the International Monetary Fund, and the European Central Bank — want to reap what they’re owed and are focusing on farmers to help pay back Greece’s bills.
But the proposed Greek reform package doesn’t include a farm tax hike, and on Monday, Tsipras said he would need until Aug. 5 to rally support to get one approved by Parliament. That sets up yet another deadline that could put Athens on the financial brink: Creditors want Tsipras to push through all the reforms they’re demanding by Aug. 7 — the day a payment of 1 billion euros, or $1.1 billion, is due.
Greek banks are now open after weeks of being closed, but cash withdrawals are limited to 60 euros per day, or about $65.
The farm tax is an important part of the reforms Europe is demanding that Athens embrace. Creditors want a 25 percent tax imposed on all Greeks, which would deter scofflaws who try to skate the tax system by declaring themselves farmers. Reports show that many Greeks simply move to rural areas and claim to be farmers, without actually growing anything to sell. And some people who once lived in the country but have since returned to cities also claim the farm tax benefit.
“People moved into town to get jobs in the good years in the early 2000s, but they never changed their tax status — and nobody pressed them to,” Theodoros Petrakis, who grows animal fodder in central Greece, told the Financial Times recently.
According to the U.S. Agriculture Department, the farm tax hike would add about 200 million euros, or $218 million, to Greek government coffers.
Lawmakers from Greek farming regions, combined with about 38 members of Tsipras’s own far-left Syriza party, managed to keep the farm tax increase out of the proposal that also includes civil justice and banking reforms.
But Tsipras’s failure to deliver on austerity demands that his government accepted less than a week ago is raising worries in Berlin. Some members of German Chancellor Angela Merkel’s conservative coalition are already opposed to the third bailout.
“This could be a significant problem if Greece doesn’t make these reforms or equivalents. This time the creditors will be very strict, and without an alternative this could be very significant,” Holger Schmieding, the chief economist at Berenberg Bank, told the German publication Handelsblatt Tuesday.
Image credit: Sakis Mitrolidis/Getty Images