ATHENS, Greece – Greece has reached its limit in raising taxes and needs to refocus its austeritry program on long-term spending cuts, the International Monetary Fund said Tuesday.

The warning came as the debt-shackled eurozone member heads toward its fourth year of recession, with revenues weakening despite draconian new emergency taxes.

“I think one of the things we have seen in 2011 is that we have reached the limit of what can be achieved through increasing taxes,” Poul Thomsen, the IMF mission chief in Greece, told reporters.

Thomsen, speaking about the IMF’s latest report on Greece’s progress, said the country’s structural reforms have fallen “well short” of expectations. But he said it was too early to say whether new austerity measures would have to be taken next year.

He concluded that Greece is not yet “doing business in a fundamentally different way” and that is why the country is still in recession.

Greece has relied on a $145 billion bailout loan package from eurozone countries and the IMF since May 2010 to stave off default.

In return, it has taken a series of debt-reducing measures, including slashing salaries and pensions and imposing several rounds of tax hikes.

Greece’s austerity program “has relied, in our view, too much on taxes and I think one of the things we have seen in 2011 is that we have reached the limit of what can be achieved through increasing taxes,” Thomsen said. “Any further measures, if needed, should be on the expenditure side.”

Greece has consistently missed deficit reduction targets, and it quickly became clear that the initial bailout would not be enough to prevent a potentially catastrophic default that could drag down other eurozone countries.

European leaders in October agreed on a second rescue deal worth $171 billion, with key details still being negotiated.

Part of the deal includes provisions to write off 50 percent of the value of Greek bonds held by private creditors, potentially cutting the country’s overall debt by $132 billion.

 

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