(In paragraph 8 of Feb 5 story, corrects translation in analyst's quote to "people-friendly" from "populist")
By Lefteris Papadimas and Renee Maltezou
ATHENS, Feb 5 (Reuters) - Greek Prime Minister Costas Karamanlis vowed higher public investment and a crackdown on tax evasion on Thursday to soften the impact of a severe global crisis, saying growth should recover from next year.
Karamanlis said his government, which has a one-seat majority in parliament, would do all it could to alleviate the harm to Greece's poor, hours after his finance minister scrapped an unpopular tax rise on the lowest-income self-employed.
"The international crisis, more intense than when it started, is now knocking on our country's door," Karamanlis said in a televised address. "No country, no economy, no society can emerge unscathed from such an intense crisis."
After a decade of robust growth, the global downturn will drag Greece's economy to a virtual standstill in 2009. Polls show many angry Greeks, whose expectations of prosperity had risen, blame Karamanlis' government for the slump.
The country's worst riots in decades last month, triggered by the police shooting of a teenager, were fuelled by frustration at economic hardships and government scandals.
In what some economists said was a populist gesture, Finance Minister Yannis Papathanassiou reinstated a tax exemption for the self-employed earning less than 10,500 euros a year. The decision to scrap the exemption -- to pare back a widening budget deficit -- sparked an outcry last year.
Papathanassiou, appointed in a reshuffle last month in the wake of the riots, announced higher cigarette and alcohol taxes on Thursday to shore up flagging budget revenues.
"These are people-friendly measures at a difficult time for the economy, helping the government ahead of possible early elections," said analyst Vassilis Vlastarakis at Beta Securities. "Slapping indirect taxes was the option with the least political cost and will yield immediate revenues."
STABLE INCREASE IN GROWTH
After growing by just over 3 percent last year, Greece's economy is expected to slow sharply to 0.2 percent growth in 2009 based on EU Commission forecasts. The government is more upbeat: projecting GDP growth of 1.1 percent and noting Greece will be one of only five euro zone economies to grow.
"(We aim) to preserve growth, even at a lower rate, for the difficult year we are going through, with a steady increase in the next years," Karamanlis said, adding that a 28 billion euro bank support plan would ensure credit to Greek businesses.
The government's attempts to mitigate the social impact of the slowdown were constrained by its heavy debt budget, Karamanlis said, and efforts to reduce the state deficit via reforms and tackling tax evasion remained a priority.
Greece projects an unchanged fiscal shortfall of 3.7 percent of GDP this year: its third successive year over Brussels' 3 percent ceiling, raising the possibility of punitive action.
"The policy for cutting deficits is strict and not pleasant, but it is crucial to avoid the worst," Karamanlis said. "We will support the poor ... as much as our economy permits."
The finance minister had earlier predicted the government would glean 1 billion euros from privatisations this year to ease its revenue shortage, despite the collapse of a tender to sell loss-making Olympic Airlines on Wednesday.
The minister struck a more relaxed tone on fiscal probity.
"Sooner or later all EU countries will have budget deficits higher than 3 percent of GDP," he said. "We mustn't ignore the stability pact. When the crisis is over, we must return to low budget deficits." (Writing by George Georgiopoulos; editing by Jonathan Oatis)