Greek authorities have prepared and brought a well-documented proposal to the table in the negotiations with the country’s creditors, outlining the medium-term fiscal path, primary balance targets and the required fiscal measures to achieve them.
In the medium-run, the proposal sets sizeable headline primary surplus targets in order to strengthen the commitment of the authorities to sound public finances and reduce the debt- to-output ratio in a non-aggressive manner, yet realistic enough so as to avoid jeopardizing the fragile economic recovery.
The proposed medium-run fiscal stance is in line with neutral overall discretionary fiscal policy. In the short run, and in light of the deteriorating macroeconomic environment for 2015, the proposal adopts a headline primary surplus target of 1% for 2015 and 2% for 2016.
Greece’s baseline fiscal scenario for 2015 (primary balance of -0.1% of GDP) and 2016 (primary balance of 0.1% of GDP) results in a fiscal gap of 1.1% of GDP for 2015 and 1.9% of GDP for 2016.
The most notable source of revenues stems from a VAT reform that yield an extra 1.4 billion ruros per year, but without increasing the rates for basic goods, such as medicine, energy and fresh food.
In addition, the proposal identifies a series of administrative measures that will deliver a significant yield for 2015 and 2016. A conservative estimate of the yield is in the range of 2.3 bn. In total, the proposal of the Greek authorities covers the estimated fiscal gap for 2015 and 2016 with parametric measures only.
Analytical parametric measures (estimates for 2015, 2016 in million euros):
Special tax 12% on corporate profits above 1 million euros
(payable in two annual installments) 600 600
Increase corporate income tax from 26% to 29% 450
Increase solidarity contribution rates in PIT 220 250
Cuts in defence spending 200
TV advertisement tax 100 100
E-gaming VLTs 35 225
Administrative dispute settlement on property taxation
of past years (FMAP, FAP) 50 50
Vehicle technical control inspection 72 50
Uninsured vehicles 51 40
Increase luxury tax and include private yachts 47 47
VAT Reform 680 1,360
Early retirement restrictions (accrual) 0 71
Pharmaceutical rebates 140 140
Analytical administrative measures (estimates for 2015, 2016 in million euros)
Fuel smuggling 75 300
Audits on Bank accounts 200 500
VAT fraud (carousel and split payment) 50 700
E-gaming 160 361
Environmental and agricultural compliance with EU regulations 276
Transfer pricing 24
Fees and licences for TV channels 340
Installment scheme 500 500