Paris talks mark start of Greece’s most crucial troika review

Apart from the place – outside Greece for the first time – a new element of these discussions is that the IMF staff team will be led by Rishi Goyal and not by Poul Thomsen, who has recently been appointed Acting Director of the IMF European Department and will not attend the Paris meetings.

The Greek mission consists of the Ministers of Finance Gikas Hardouvelis, Development Nikos Dendias, Labor Yiannis Vroutsis, Administrative Reform Kyriakos Mitsotakis, Justice Charalambos Athanasiou and the Alternate Finance Minister Christos Staikouras.

Following a series of meetings with the Prime Minister Antonis Samaras yesterday, the Finance Minister scaled down the high expectations that had been widespread in the past few days on imminent agreement regarding tax relief measures.

Asked to comment on the Greek priorities in the upcoming meetings in Paris he stressed that “our priority is to increase our credibility. With increased credibility, we can achieve more in the future”.

Local media indicate that discussions will touch upon the fiscal gap for 2015, tax breaks, adjustments to the single property tax (ENFIA), protection of primary residence from foreclosure for another year, increase in the number of instalments for unpaid taxes and settlement of mounting non-performing loans.

In addition, further adjustments in the social security funds, labor market and public sector will be part of the next troika review. They key issues involve the consolidation of primary social security funds (SSF), the funding of SSFs, change in the status of collective dismissals in the private sector and redundancies in the public sector.

The implementation of structural reforms is also key in this review with the Finance Minister noting yesterday that “we have made good progress in many areas and we will discuss (with the troika) all recent developments”.

On the fiscal gap for 2015, recent reports citing MoF sources indicate that it is estimated at 900 million by the Greek government and at 2 billion by the troika institutions. It is not clear whether these figures incorporate the expense that emerged from the Council of State ruling to reverse the 10 percent wage cut imposed on members of the armed forces and emergency services.

The issue of tax breaks has been raised by the government as a top priority theme for the next round of negotiations with the troika and primarily involves two specific taxes:

The first is the solidarity levy imposed on incomes in 2011, with the government proposing a 50 percent cut. The troika is reportedly opposing such a development since it brings 1.4 billion in the public coffers and has not yet been convinced on the equivalent measures that could eliminate the emerging gap in revenues.

The second key tax issue is the proposed cut by 20-30 percent in the excise tax on heating oil, which had been raised to the same level as the excise tax on vehicle fuel in autumn 2012.

The imposed taxation had a material negative social burden, since citizens resorted to alternative sources of heating mainly burning wood and wood products with a consequent negative impact on their quality of life and air pollution.

In addition, there was also a clearly negative impact on public finances, since the net revenue shortfall from heating oil stood at 750 million for the 2-year period.

The government is also aiming at retaining the VAT rate on accommodation and food services at 13 percent for another year, while its medium-term targets involve the gradual reduction of the corporate tax rate from 26 to 15 percent and the rate of the upper tax scale for physical persons from 42 to 33 percent.

Another issue related to tax revenues is the heightened amount of new unpaid taxes which reached 7.24 billion in 2014, implying an average increase by 1.03 billion per month. Including legacy tax debt (created by the end of 2013), the outstanding aggregate tax debt reached 68 billion at the end of July.

Mounting tax debt presents a serious threat on tax collection in the future and the Greek government is proposing a significant increase in the number of instalments for unpaid taxes to 100. Nevertheless, the troika inspectors have not accepted such a development so far.

Local media indicate that the government prefers a review completion by October 15, before the disclosure of the outcome of EU-wide stress tests on Greek banks’ capital needs.

However, the troika is reportedly favoring a delayed conclusion in order to incorporate Greek banks’ potential capital needs in the negotiations for the identification of funding gap and decisions on debt relief measures along with the completion of the EAP review.

The completion of the sixth review by the IMF will pave the way for the disbursement of its next tranche of 3.5 billion, while the next (and last) tranche by the EFSF stands at 1.8 billion.

The agenda of this review includes a series of critical issues that should be resolved and agreed in all fronts and would the last and most crucial ahead of the overarching issue of debt relief measures. All previous negotiations with the troika had negative political and social repercussions and remains to be seen whether this review in a period of GDP rebound and with a new Finance Minister in place will yield a more meaningful outcome.


About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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