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Fragile Greek coalition's majority shrinks

A farmer uses a stick to hit policemen during a rally against the government's new property tax outside the parliament in Athens December 20
A farmer uses a stick to hit policemen during a rally against the government's new property tax outside the parliament in Athens December 20

By Harry Papachristou and Lefteris Papadimas

ATHENS (Reuters) - The Greek coalition government's majority in parliament shrank to just three seats on Saturday after a lawmaker rebelled over a controversial new law to extend property taxes to farmland.

Prime Minister Antonis Samaras's majority of 26 seats after last year's election has dwindled to the point where it raises the risk of political instability that could hamper recovery and Greece's ability to meet targets for its international bailout.

Samaras expelled lawmaker Byron Polydoras from the conservatives' parliamentary group after he refused to back the new tax law demanded by Greece's lenders.

"Lenders' greed and poor judgment is leading us straight towards humanitarian crisis," Polydoras said.

His expulsion reduces the parliamentary group of Samaras's conservative-Socialist coalition government to 153 in the 300-seat parliament.

The new legislation, passed on Saturday, replaces a deeply unpopular property levy collected through electricity bills with a broader tax on real estate, including land holdings.

Polydoras had argued that the new tax amounted to confiscation.

Greece has suffered six years of recession and record unemployment of about 27 percent as it has enacted austerity policies under the terms of its 240 billion-euro bailout from the European Union and International Monetary Fund.

Technocrat Finance Minister Yannis Stournaras said this would be the last austerity legislation to be put before lawmakers as the Greek economy begins to recover.

"I am absolutely convinced that parliament will have less onerous issues to deal with in 2014," he said. The Greek government and lenders expect the economy to grow by 0.6 percent next year, after a 25 percent drop over the past six years.

Benefiting from growing frustration with austerity policies, the main opposition, anti-bailout Syriza party has a 0.4-2.5 point lead over Samaras's conservative New Democracy party, two newspaper opinion polls showed on Saturday.

DEFIANCE

The government projects the new property tax will bring in about 2.65 billion euros ($3.62 billion) annually, less than the 2.9 billion euros it collected under the previous regime.

To offset the shortfall, it will cut its investment program by 200 million euros next year.

The new legislation also reduces the property transfer tax to 3 percent from a previous 8 to 10 percent, to help boost transactions in a moribund market. Apartment prices have plunged by 32 percent since their peak in 2008.

Property accounts for a large chunk of household wealth as Greece has one of the highest home ownership rates in western Europe - 80 percent versus a European Union average of 70 percent - according to European Mortgage Federation data.

Inspectors from the European Union, European Central Bank and International Monetary Fund troika agreed to the new tax, even though they had raised concerns on whether Greece can collect it effectively.

In a show of defiance against the troika, parliament separately extended a ban on primary home foreclosures for one more year.

Athens has been at loggerheads with its international lenders over lifting restrictions on home seizures to allow banks to recover bad loans and will legislate without their full blessing as the two sides have yet to bridge differences.

Disagreements over the foreclosure ban was one of the reasons the troika this month interrupted an inspection visit to Athens for the third time, withholding a 4.9 billion euro bailout payment.

Athens, however, has no immediate funding needs and faces no big bond payments until May.

(Additional reporting by George Georgiopoulos; Editing by Andrew Roche)

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