NAXOS, Greece (Reuters) - A jovial potato farmer whose family has tilled the fertile land on the island of Naxos for over 200 years, Stelios Vathrokilis is unfazed by all that he believes a farmer must inevitably face: God, inclement weather and natural disasters.
But mention tax hikes on farmers demanded by Greece’s creditors and Vathrokilis’ face darkens with anger.
“With the new taxes we will turn the clock back to 1970 when my mother cooked on a wood stove,” the portly 50-year-old says. “Life will be like what it was when Nazis occupied the country, except this time it will be forever.”
For Vathrokilis’ compatriots, the hardships of seven years of austerity are nothing new. One in four workers is unemployed and virtually every industry has made sacrifices in jobs and in pay. Yet some sectors, notably agriculture, have been relatively untouched and even, critics say, coddled. No longer.
The change is an illustration of the hardened mood among Greece’s creditors in Brussels, Berlin and at the IMF, and a sign of Greek Prime Minister Alexis Tsipras’ weakened hand in the latest round of bailout negotiations.
Greece’s new bailout program, the third, looks set to scrap the status of Greece’s farmers as a protected group, long the beneficiaries of subsidies and tax breaks.
Farmers have been shielded by successive governments in a nod to supporting agriculture and keeping an important voter base on side. As a consequence, farmers largely escaped the worst of Greece’s financial ruin. As the crisis bit, many Greeks who lost big-city jobs even returned to villages for the relative safety of farming.
But that is set to change at a stroke. Greece’s creditors are demanding measures to end special treatment for farmers. These would involve doubling their income tax rate to 26 percent, making them pay tax upfront, full instead of partial taxation of EU farm funds and scrapping benefits such as a 40 percent discount on power and diesel subsidies, Greek officials say. Farmers are also expected to triple contributions to their pension fund.
The changes would mark the end of an era for Greek farming, a sector dominated by small-scale farmers who thrived in recent decades thanks to an influx of EU funds and benefits aimed at making up for a lack of economies of scale and ensuring the country preserved its agricultural sector.
The lenders say farming should now simply be brought in line with other professions. In a country where inheriting a tiny olive grove or a small patch of land in the countryside is common, the changes would also end the incentive to declare oneself a farmer in order to enjoy preferential tax treatment.
Only about 350,000 of the 850,000 Greeks involved in farming are full-time farmers, said an agriculture ministry official, adding that a third of agricultural output is sold or traded illegally without receipts.
Farming has also been beset with legal loopholes: until recently, the size of land held rather than output determined eligibility for farmers’ benefits, allowing some Greeks cultivating small plots for their own use to enjoy the perks.
And even the current 13 percent income tax rate was only introduced in 2013 under pressure from EU/IMF creditors after they found farmers were being taxed not on income but on a method based on acreage and type of crop that resulted in minimal taxes for most, the official said.
Before that tax rate was set, farmers paid a total of 350 million euros in tax in 2013 - meaning the state only received about 400 euros in taxes annually per Greek farmer, said an official at Greece’s financial crimes unit, who declined to be named because he was not authorized to speak to the media.
But in a country that prides itself on an agrarian heritage and where most urban Greeks have family or roots in villages, the latest proposals have stirred deep anger and a backlash from opposition and government lawmakers.
“Greece is seen as an agrarian society - the farmer is more associated with the common man than the industrial laborer,” said Joann Ryding, vice president of the American Farm School in Thessaloniki, which teaches farmers to run their farms as a business. “The farmer represents the struggling common man.”
So contentious is the issue that Prime Minister Tsipras excluded it from two sets of reforms passed last month, leaving it part of a small set of unresolved issues still being discussed with lenders before being voted on.
This week, Tsipras visited the agriculture ministry to pledge he would fight for farmers even as his government rushed to conclude talks with creditors before a mid-August deadline. He said he was pushing to keep the farmers’ income tax rate at 13 percent and have them pay half rather than all tax upfront.
“We need to support agricultural production which can be a tool to grow and exit the crisis,” Tsipras said, and then, referring to farmers: “Without them, we cannot make it.”
In Naxos, a large Cycladic island famous for its potatoes, meat and hard graviera cheese, that is cold comfort to local farmers who fear the end of a lifetime of tilling the land. Farmers here say they are already struggling as a consequence of Greece’s financial crisis.
At the pastel pink offices of the island’s farming cooperative near large potato fields, president Dimitris Kapounis shrugs his shoulders and estimates business for a third of the cooperative’s 3,000 farmers would be rendered unviable.
Unlike many tourist-reliant Greek islands, farming accounts for over half of economic activity in Naxos and the latest changes could reshape the island, driving away youth who had returned and increasing reliance on tourism, he says.
“The troika can come here and cultivate the land themselves if there’s going to be a tax rate of 29 percent,” he retorts, referring to the trio of Greek creditors - the European Commission, the European Central Bank and the International Monetary Fund - demanding the changes.
At his potato field nearby, 35-year-old farmer Yiannis Dimitrokalis complains the cost of electricity and fertilizers soared amid the crisis and he was forced to sell his potatoes at a loss for 22 cents/kilo last year, below their 27 cent/kilo production cost. The new taxes will be the final blow, he says: “There is no reason to continue production with losses.”
At the cooperative’s cheese factory that produces graviera and salty Kefalotyri cheese from sheep’s milk, the mood is grim as white-robed workers pat cheese churned out by milk vats into large rounds for storage in vaults.
Georgia Kapouni, quality control engineer at the factory, is worried higher taxes could prompt dairy farmers to cut corners on animal feed or equipment to save money: “Then the milk won’t be the same and the cheese won’t be the same - and the consumer will know,” she says ruefully.
She’s afraid things could get even worse: “If farmers stop bringing their milk to us, then there’s no more work for us.”
Additional reporting by Lefteris Karagiannopoulos, Writing by Deepa Babington; editing by Janet McBride