This is the new Medium Term - 5.5 billion public sector cuts till 2018
New tax twists in Greece, whether these lead to to tax relief (as it is foreshadowed by the government) or more taxes (as it is requested by Troika), are seem to be hidden behind the “fight” for the “measures to be identified” of 7.7 billion euro indicated in the the European Commission report till 2017
Austerity measures for Public sector
According to sources, the new medium term will provide additional tax revenues of 2.6 billion euros, mainly from indirect taxes (excise tax on fuel and drinks and VAT ) and contributory municipality fees and major new funding cuts on public sector.
The new medium term that the government will present as the new “map for Greece's exit from economic crisis and memorandum” gets the public sector on “a strict diet” in order to cover the fiscal gap with the amount of 5.5 billion euro. It provides additional spending cuts over 1 billion euros per year on ministries, local authorities, social security funds, hospitals and on public sector in general.
Four ministries out of 17 will suffer the austerity measures. It is the Ministry of Labour, Ministry of Education, Ministry of Health and Ministry of Defense, while the measures will probably apply to Public Investment Program, too.
No new taxes , only fluctuation ... !
The Deputy Minister of Finance Mr. Christos Staikouras said in an interview that the fiscal gap for 2015-2017 will be covered with no more new taxes or cuts in salaries and pensions. Mr. Staikouras assured that the improvement on fiscal stability will be reflected in the real economy and in society, not only by the 525 million social dividend, but also by a possible reduction of the maximum tax rates and broadening of the tax base.
As for the broadening of the tax base, though, Troika puts also on the table the reduction or elimination of low VAT rates in Greek islands.
As it is revealed by the texts of the new revised memorandum and the assessment report of the European Commission on economic policy program of Greece, the Troika asks:
1. Establishing a minimum gross income, below which businesses and freelancers are exempt from the obligation to withhold and pay VAT on their transactions. IMF has already proposed the amount of 25,000 euros, but the limit might be set lower to 10,000-15,000 euros.
2. Changing and “simplifying” the VAT legislation, without many (or any) exceptions and exemptions or reduced rates! The Troika has even recommended in the past to abolish the reduced VAT rates which apply to Aegean islands, food, medicines, electricity bills, water and gas, tickets for public transport, taxi fares and the repair and maintenance of old houses.
3. Implementing new “final withholding tax”. This system is expected to significantly increase tax deductions on salaries and pensions as these will be calculated on the sum of the total amount of salaries paid and not on the amount paid independently by each employer or social insurance fund!
They disagree on the measures
On the occasion of the European Commission report, which refers to “measures to be identified”, the Greek Ministry of Finance mentions in a statement that “no new taxes or further cuts on salaries and pensions are mentioned in the report” and states that “the report refers to structural interventions that are not related in any way to salaries and pensions”.
The report mentions a financial gap of 2 billion or 1.1% of GDP in 2015, 3.8 billion or 1.9 % of GDP in 2016 and 1.9 billion or 0.9 % of GDP in 2017.
However, the government says that “the existing fiscal gap will be zero in the coming years thanks to the satisfactory appliance of this year's budget, the implementation of structural interventions and the gradual improvement of liquidity following Greece's return to the bond markets, as well as the general development initiatives which will be announced soon”.
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