Greece readies tax change to fight crisis

Greek officials put the final touches Monday on an overhaul of the country's ineffective tax system - part of their urgent effort to fix a debt crisis that has shaken the entire eurozone.

The center-left government, elected in October, has pledged to fight endemic tax evasion and increase taxes on the rich, as well as taxes on fuel, cigarettes and alcohol.

Finance Minister George Papaconstantinou says a new tax bill to be presented this week will expand the top 40 percent tax bracket to incomes below the current euro75,000 ($102,000) threshold. In an interview in Ta Nea newspaper, Papaconstantinou also insisted that middle- and low-income earners would pay less tax.

Greece's budget deficit reached 12.7 percent of annual economic output last year - four times over the EU limit - while the national debt was more than 113 percent of GDP. This alarmed Greece's European Union partners and international markets, forcing a spike in borrowing costs for Greece and other weak European economies and pushing down the euro exchange rate.

The Greek crisis highlights one of the vulnerabilities of the euro currency. It has one central bank, the European Central Bank, to set interest rates, but no central fiscal authority. Instead, the monetary union depends on all 16 governments following rules to keep their deficits within a limit of 3 percent of gross domestic product each year - and those limits have been widely breached during the world economic turbulence of the last three years.

EU officials have put intense pressure on Greek to get back within the deficit limits. The government says it will do so by 2012, but markets remain skeptical that it can force through such extreme cuts, which could be highly unpopular.

A newspaper poll Sunday found that most Greeks back Prime Minister George Papandreou's plans to freeze civil servants' wages and cut their bonuses. But the majority of respondents also opposed a hike in the fuel tax and the introduction of new taxes.