Greece readies new measures to plug budget hole

* Greece to take corrective fiscal measures to meet targets

* Government may limit tax exemptions

* Doubts about hike in heating oil excise tax

* EU/IMF officials in Athens next week on fiscal plan

By George Georgiopoulos

ATHENS, March 29 (Reuters) – Greece will take new measures
to compensate for a revenue shortfall in the first quarter and
make sure it meets its goal of cutting its budget deficit by 2
percentage points this year, officials said on Tuesday.

Budget slippage and local newspaper reports that last year’s
fiscal gap may have topped 10 percent of gross domestic product,
instead of the announced 9.4 percent, are piling pressure on the
government as it readies a medium-term plan to get the deficit
down to 2.6 percent of GDP by 2014. [ID:nLDE72S0E9]

Standard & Poor’s downgraded Greece’s sovereign debt deeper
into junk territory on Tuesday, saying plans to create a
permanent bailout fund for the euro zone, agreed by euro zone
leaders last week, increased the likelihood of debt
restructuring by Greece. [ID:LDE72S1RU]

The Greek government wants to finalise its new budget plan
by end-March, ahead of a visit next week by officials of the
European Union and International Monetary Fund, which are
providing Greece’s 110 billion euro international bailout.

“Revenue is the most important issue because Greece is far
from target. Tackling tax evasion and tax fraud is crucial,”
said an official close to Greece’s international lenders, who
declined to be named.

Greece has already committed to a wide range of austerity
steps and structural economic reforms in an effort to regain
fiscal health and make its economy more competitive.

But the January-February central government budget gap
widened 9.0 percent to 1.028 billion euros and revenues have
been missing indicative targets, so Athens must take fresh
action to secure the next EU/IMF loan instalments.
[ID:nLDE72A1L9]

“Of the measures being considered, two thirds will focus on
spending cuts and one third on a rise in revenue. Linking tax
exemptions to income criteria is something we should look at,
but there are no final decisions yet,” a government official who
did not want to be named told Reuters.

Among steps being considered are cancelling income tax
exemptions, such as those for interest on a first mortgage and
school tuition for people earning higher incomes. No cut-off
levels have been specified.

Other moves may include cuts in supplementary allowances at
state-owned firms, and merging public sector entities.

OIL TAX

But the government is having second thoughts about plans to
lift the heating oil excise tax up to diesel levels, fearing the
blow to household budgets after the surge in global oil prices.

The plan was for the measure to go into effect from October
and yield around 400 million euros.

“We are aware of the problem this could create and are
re-assessing this proposal to see if we can replace it. We
haven’t decided if it will be adopted,” Deputy Finance Minister
Philippos Sachinidis told state TV Net.

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Graphic on euro credit ratings: http://r.reuters.com/pyh48r

Graphics on euro debt struggle: http://r.reuters.com/hyb65p

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The government, whose popularity has declined because of
tough austerity measures, has said the new steps will not
include cuts in wages or pensions.

“The total tightening for this year may be just too much for
the economy to withstand, meaning the deficit target is unlikely
to be met,” said Citigroup economist Giada Giani.

The higher-than-expected January-February budget deficit
triggered the resignation of the ministry’s general secretary
for taxation last month, with the government appointing the head
of its financial crimes unit to the job.

Meanwhile, the conservative political opposition, which
voted against the bailout memorandum, is pressing the government
for moves to bolster growth and avoid raising taxes.

“The pie keeps getting smaller and the government is trying
to take more revenue. We need to grow the pie to have more
revenues,” said New Democracy’s shadow finance minister Christos
Staikouras.

A medium-term package of fiscal and structural measures to
ensure 2012-14 targets are met will be cleared by the cabinet by
mid-April. The EU Commission and the IMF said in their latest
review of Greece that permanent measures amounting to about 8
percent of GDP would be needed for this period.

“The overall objective (of the plan) is to show how Greece
will stick to the targets,” said the official close to Greece’s
international lenders.

“There has to be a very solid plan on revenues because it is
the origin of deviations that can lead to a questioning of the
sustainability of the programme.”

Officials of the EU, the IMF and the European Central Bank
are expected in Athens next week to discuss the plan, although
no date has yet been fixed for the meeting and it is not clear
exactly which officials will come.

(Additional reporting by Lefteris Papadimas and Ingrid
Melander; Editing by Andrew Torchia)

Greece readies new measures to plug budget hole