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Published: Saturday December 21, 2013 MYT 9:40:02 PM
Updated: Saturday December 21, 2013 MYT 9:40:02 PM

Fragile Greek coalition's majority shrinks

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 more than 20 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.

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

The new legislation, which passed on Saturday, replaces a deeply unpopular property levy collected through electricity bills with a broader real estate tax, 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 terms of its 240-billion euro bailout from the European Union and International Monetary Fund.

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 programme 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 the 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.

(Additional reporting by George Georgiopoulos; Editing by Matthew Tostevin)

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