Greek tourism draws line in the sand over tax hikes
Reuters
By Matthias Williams and Michele Kambas
PAROS, Greece, June 28 (Reuters) - Alexis Kalaitzoglou makes a swift gesture to describe what he thinks about Prime Minister Alexis Tsipras: the shopkeeper of this busy tourist island pulls his leg back and swings it forward as if to give Greece's leader a good kicking.
Kalaitzoglou is angry because his family's shop of jams, honeys and wooden handicrafts - part of a wider tourism industry that is the only bright spot of Greece's struggling economy - may be in for a rough ride.
A rise in consumer taxes on Greek islands' goods and services such as the ones Kalaitzoglou sells is one of the sacrifices creditors are seeking from Athens to unlock bailout funds that will allow Greece to remain in the euro. The tax hike is one of the sticking points thwarting a deal and prompting Tsipras to call a July 5 referendum on the bailout terms.
Yet even before the vote, Greece is likely to default on a debt payment, setting off a financial crisis that could damage an upcoming tourist season expected to be one of the most vibrant in years.
The creditors want to raise VAT rates for services such as restaurants and hotels as well as ending the tax breaks for islands like Paros in the Cyclades.
The tax breaks are intended to make resorts more attractive and also shield poorer, more remote communities from the higher costs of transporting goods. Raising them would force businesses to jack up their prices at the risk of driving customers away, or face a sharp drop in revenues.
"If the VAT rises to 23 percent in all goods, we better jump in the sea and be done with it," said the 62-year-old Kalaitzoglou. On Paros and other islands, VAT rates are 30 percent lower than on the mainland. For example, they pay a VAT rate of 9 percent on food that could be raised to 23 percent.
"The sea and the tourism are the backbone of our economy, if we touch that too, there is no future anymore."
The anger of Kalaitzoglou and others underscores Greece's dilemma as it flirts with an exit from the euro single currency: after five years of belt-tightening in exchange for bailout money, Greece needs to promise more austerity to stay financially afloat. But that pledge risks undermining the country's already scant opportunities for economic growth.
"We all know, the biggest importer of currency is tourism. If tourism is hurt, it will have a knock-on effect on the economy, a recessionary spiral, and then how will lenders be repaid?" said Paros hotel owner George Mbafitis.
ONE BRIGHT SPOT
After a fragile recovery last year, Greece has fallen back into recession. People are fed up with austerity measures imposed by the International Monetary Fund, the European Commission and the European Central Bank in two bailouts.
One in four Greeks is out of work and an average of 59 businesses are closing daily, according to the National Confederation of Hellenic Commerce (ESEE).
But tourism - which accounts for nearly a fifth of Greek's yearly output - has shrugged off the gloom. The Association of Greek Tourism Enterprises (SETE) reported a provisional 15.4 percent increase in tourism arrivals through international airports in the country in 2014.
Year to date data by the association put arrivals up by 17.5 percent in the first quarter of 2015.
Proposals for tax hikes have emerged after a months-long tug of war with the Greek government over where to find cost cuts.
Tsipras, whose leftist coalition took power in January promising to end the "humiliation" of job and wage cuts, has been reluctant to slash pensions and wages beyond the cuts made over the past five years. That has forced him to consider taxing companies more to bring in extra revenue.
Tsipras's junior coalition ally has threatened to pull the plug on the government if any tax hikes on islands materialise.
Critics argue the tax rises are a lazy way to raise revenue at the expense of real reforms to the Greek economy, such as tackling corruption and tax evasion, overhauling labour regulations and cutting down a bloated pension system.
"They don't want to touch the privileged, which are mostly public workers, which are the customers of the political parties," said Nicolas Stephanou, who runs a tourism web portal in Paros.
Beyond the tax hikes, heightened uncertainty over whether Greece will stay in the euro zone is also beginning to hurt tourism business. Some companies have reported a drop in bookings from such travellers, partly perhaps because of scare stories of possible bank runs and street protests.
On Sunday, Germany's foreign ministry advised tourists travelling to Greece to take plenty of cash with them in case of problems with local banks.
"I had customers this morning asking me what was happening, what they should do," Dimitris Stavrakis, a hotelier from Paros.
"This thing has gone on for too long. Will they sign, won't they sign. Now a new round of uncertainty might start with the referendum."
Some economists argue that returning to a sharply devalued drachma - the prospect Greece faces it if does exit the euro - could boost tourism and other service sectors by making them cheaper.
But for Paros hotelier Stavrakis, it's not worth the risk:
"There are so many unanswered questions on how it would work if we did return to the drachma, what it would cost now, I'm not sure. Definitely it would make holidays cheaper but I don't think that it is a realistic option."
Kalaitzoglou of the jam and handicraft shop says life is already difficult enough. His wife, who works at a travel agency, has seen her salary reduced by 200 euros. And the shop, run by his daughter, could struggle.
"We can't be wishing to buy an ice-cream for our grandchildren and start having second thoughts about it." (Additional reporting by Lefteris Karagiannopoulos and Lefteris Papadimas; editing by Janet McBride)
