As elections loom, Greece announces 'relief measures'

By Renee Maltezou and Lefteris Papadimas

ATHENS (Reuters) - Greek Prime Minister Alexis Tsipras on Tuesday announced tax cuts and pledged to reinstate a benefit for low income pensioners among other “relief measures”, weeks before municipal and European Parliament elections.

Greece emerged from its third international bailout in August last year and has been outperforming fiscal targets agreed with its international lenders, giving the government leeway to proceed with handouts in an election year.

“The time has come for the sacrifices of the Greek people to be vindicated,” Tsipras said in a joint news briefing with Finance Minister Euclid Tsakalotos and other ministers.

The new measures will come into effect in 2019-21. They include a permanent benefit for pensioners, who saw their incomes slashed at the peak of Greece's debt crisis in 2012. Value-added tax on restaurants will be reduced to 13 percent from 24 percent while the reduced VAT bracket will fall to 11 percent from 13 percent.

The government will also eliminate a so-called “solidarity tax” on annual incomes of up to 20,000 euros and lower it for all other incomes from next year. It also wants to reduce corporate tax to 25 percent by 2021 from 28 percent.

Tsipras, who faces a confidence vote on Friday, said the new handouts were not expected to put the country's fiscal achievements or annual targets at risk.

It was not clear if the lenders, who started a post-bailout review to assess Greece's progress this week, had approved the handouts.

Greece has committed to delivering primary budget surpluses, excluding debt servicing, of 3.5 percent of annual economic output up to 2022.

Its outpeformance this year would be 1.14 billion euros, Tsipras projected, adding that Greece has a 31 billion euro liquidity buffer.

In the coming days, an amount of 5.5 billion euros would be deposited in an escrow account, which would serve as a guarantee that Greece would meet its fiscal targets up to 2022 and debt obligations, he said.

“We promised 3.5 percent and they (the lenders) will get 3.5 percent,” Tsakalotos said. “Either they will get it from the escrow account or from our outpeformance... It's our guarantee.”

His leftist government, trailing the conservative opposition in opinion polls, is keen to demonstrate its concern for poorer, more vulnerable Greeks hit hardest during the 10-year crisis.

Late on Monday, the labor ministry submitted to parliament a bill providing relief to millions of people owing tax and pension contribution arrears.

Tsipras's term ends in October and he is seeking re-election. European Parliament elections will be held in parallel with municipal and regional elections on May 26.