No daylight between Greek and Troika proposals

10 July 2015 | Philip Ammerman

Naftemboriki has published the new Greek proposals submitted by the Greek government yesterday as loan conditionality for a third Memorandum, comprising a three-year loan of € 51 billion.

I have implemented a line-by-line comparison of the Greek proposal of July 9 and the Troika proposal of June 26th and have concluded the following:

  1. The Greek proposal is literally a copy-paste exercise. There is almost no difference between the two versions. In some cases, the Greek proposal exceeds the original Troika proposals with more favourable policy measures.
     

  2. The Greek side has fully adapted the tax and revenue proposals submitted by the Troika for VAT, pensions, etc.
     

  3. It is impossible to see how SYRIZA-ANEL can pass these measures that they have just campaigned against in a Referendum, condemning the Troika as being pillagers, blackmailers and terrorists.
     

  4. It is impossible to see how the 61.3% of the Greek population who voted “no” on this Referendum, which asked them specifically if they accepted an earlier version of these proposals, can accept this proposal.
     

  5. Nonetheless, the comments by SYRIZA MPs and Ministers shown on ERT (the state broadcaster) this morning shows a certainty that SYRIZA will pass them, authorising the Greek Prime Minister to negotiate on this basis.
     

  6. Last week’s Referendum has seriously shaken European creditor trust in SYRIZA. Even despite these proposals, it is difficult to see how they can be implemented or accepted without real guarantees.
     

  7. The macroeconomic and fiscal situation in Greece has deteriorated still further, so it is not certain that even these measures are sufficient.
     

  8. I would like to specifically note that there is no mention of debt relief in the SYRIZA proposals. But SYRIZA MPs interviewed this morning entering Parliament are expressing satisfaction that debt relief is forthcoming.
     

A line-by-line comparison of the two versions follows. You can find the original documents here:

Greek Proposal of 9 July

http://www.naftemporiki.gr/finance/story/976680/the-greek-reform-proposals

 

Troika Proposal of 26 June (check PDF at bottom of page)

http://europa.eu/rapid/press-releaseIP-15-5270en.htm

 

Surplus Targets

Full agreement with the Troika proposal of June 26th.

This does give Greece partial “breathing room” in 2015-2016 with a lower primary surplus target compared with the laws in effect. However, it will not be enough for meaningful debt reduction and imposes a “performance cap” that most governments will struggle to meet.

VAT Reform

Full agreement with the Troika proposal of June 26th.

There is one small difference on the phasing of the 30% VAT reduction on remote islands.

 

Fiscal Structural Measures – Corporate Tax

Full agreement with 26 June proposal. We understand that the corporate tax rate will be raised to 28% (a 2% difference) and a 100% pre-payment required (offset against the current 85% prepayment).

There is a one-year difference in the individual corporate rate

I believe the Troika will require adjustments of the individual corporate tax rate by 2016, or perhaps even this year with an immediate law.

 

Fiscal Structural Measures – Farmers, Solidarity, Subsidies

Full agreement with June 26 proposal.

Farmers (some of them) have long been preferentially-treated political clients, given their disproportionate political role in rural areas. Given the outsized support they receive from the Common Agricultural Policy, a tax harmonization is needed. The solidarity tax affects everyone with certain income, and will increase the solidarity surcharges, probably from EUR 2000 monthly income and above.

 

Fiscal Structural Measures – Property Tax

Full agreement with Troika proposal.

Although SYRIZA came into power promising to eliminate the hated “ENFIA” tax, it is apparent that whether this is called ENFIA or something else, the tax on property remains in place.

 

Fiscal Structural Measures – Shipping Tax

Full agreement with Troika proposal.

This tax is controversial and probably reflects competitive pressure on Greece from Germany and other shipping competitors. The result will be to move shipping away from the Greek flag to other offshore jurisdictions such as Marshall Islands (United States), Panama, Liberia, Cyprus, Jersey, Guernsey, etc. There is a popular understanding that Greek shipowners are tax free, but it should be remembered that the vast majority of shipowners do no shipping within Greece: 100% of their cargoes and ships never dock at a Greek port. The first signs from last week already show that there is a rush for other flags by Greek shipowners.

 

Fiscal Structural Measures – Healthcare

Full agreement with Troika proposal

This clause aims to reduce the costs of healthcare by increasing the share of generic pharmaceuticals (which are cheaper than ones under patent) and implementing stricter tests for clawbacks and diagnostics. It is a logical step, depending on how it is implemented. The SYRIZA health minister this week condemned the clawback measures and stated they would never be implemented.

 

Fiscal Structural Measures – Military Procurement

€300 million difference with Troika proposal, falling to € 200 million in 2016. SYRIZA agrees to reduce headcount and procurement costs.

ANEL Minister of Defence Panos Kammenos has suggested he will not accept any military cutbacks.

 

Fiscal Structural Measures – Media

Full agreement with Troika proposals

It should be emphasised that most if not all Greek private TV channels are broadcasting without a license, and are owned by individuals that have conflicting interests and in the past have had tangled relationships with public procurement. Re-tendering the license is an important and necessary step. However, it should also be remembered that the recession has reduced TV advertising anyway, while most stations are showing a financial loss. The ability to collect this tax, therefore, is in doubt.

 

Pension Reform

Full agreement with Troika proposals.

SYRIZA has campaigned heavily on not reducing pensions. The Troika proposal was to reduce the EKAS pensions on higher pension categories. The new Greek proposal states exactly the same. A new minimum social insurance is to be introduced in the future.

 

Pension Reform - Sustainability

Full agreement with Troika proposals.

I have split this out to emphasize a very positive point: that the pension base for all self-employed will switch from notional to actual income. This is an extremely important point to rationalise TEBE / OAEE insurance, which is based on lump-sum contributions rather than indexed to actual salaries.

 

Public Administration

There is no original Troika proposal on this part.

We remind readers that SYRIZA has condemned the mobility scheme as being unconstitutional and illegal. SYRIZA has re-employed at least 5,000 state workers placed in the older mobility scheme. If implemented properly, this is a positive step.

 

Anti-Corruption

Full agreement with Troika proposals.

This will be a very positive step if it is implemented properly.

 

OECD Cooperation

There is no exact original Troika proposal on this part.

If actually implemented, this is extremely valuable and positive. However, there are good reasons to assume it will never be implemented. We have already seen, for instance, the attitude of SYRIZA Minister Lafazanis to protecting Public Power Corporation employees and sinecures. We also see that SYRIZA—like many other Greek parties before it—is using State Owned Enterprises to appoint its own clients.

 

Independence of Tax Administration

Full agreement with Troika proposals.

These are extremely good proposals if indeed they can be implemented, and if independence translates into effective and transparent governance.

 

Transfer Pricing and Tax Evasion

Exceeds Troika proposals.

These are extremely good proposals if they can be properly implemented. Greece has long had a problem with unreported income and offshore transactions.

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