Policy Commitments and Actions to be taken in
consultation with EC/ECB/IMF staff:
1. 2015 supplementary budget and 2016-19 MTFS[1]
Adopt effective as of July 1, 2015 a supplementary 2015 budget and a
2016–19 medium-term fiscal strategy, supported by a sizable and credible
package of measures. The new fiscal path is premised on a primary surplus
target of (1, 2, 3), and 3.5 percent of GDP in 2015, 2016, 2017 and 2018. The
package includes VAT reforms (¶2), other tax policy measures (¶3), pension
reforms (¶4), public administration reforms (¶5), reforms addressing shortfalls
in tax collection enforcement (¶6), and other parametric measures as specified
below.
2. VAT reform
Adopt legislation to reform the VAT system that will be effective as of
July 1, 2015. The reform will target a net revenue gain of 1 percent of GDP on
an annual basis from parametric changes. The new VAT system will: (i) unify the
rates at a standard 23 percent rate, which will include restaurants and catering,
and a reduced 13 percent rate for basic food, energy, hotels, and water
(excluding sewage), and a super-reduced rate of 6 percent for pharmaceuticals,
books, and theater; (ii) streamline exemptions to broaden the base and raise
the tax on insurance; and (iii) Eliminate discounts on islands, starting with
the islands with higher incomes and which are the most popular tourist
destinations, except the most remote ones. This will be completed by end-2016,
as appropriate and targeted fiscally neutral measures to compensate those
inhabitants that are most in need are determined. The new VAT rates on hotels
and islands will be implemented from October 2015.
The increase of the VAT rate described above may be reviewed at the end
of 2016, provided that equivalent additional revenues are collected through
measures taken against tax evasion and to improve collectability of VAT. Any
decision to review and revise shall take place in consultation with the
institutions.
3. Fiscal structural measures
Adopt legislation to:
·
close
possibilities for income tax avoidance (e.g., tighten the definition of
farmers), take measures to increase the corporate income tax in 2015 and
require 100 percent advance payments for corporate income and gradually for individual
business income tax by 2017; phase out the preferential tax treatment of
farmers in the income tax code by 2017; raise the solidarity surcharge;
·
abolish
subsidies for excise on diesel oil for
farmers and better target eligibility to halve heating oil subsidies expenditure
in the budget 2016;
·
in
view of any revision of the zonal property values, adjust the property tax
rates if necessary to safeguard the 2015 and 2016 property tax revenues at
€2.65 billion and adjust the alternative minimum personal income taxation.
·
eliminate
the cross-border withholding tax introduced by the installments act (law
XXXX/2015) and reverse the recent amendments to the ITC in the public
administration act (law XXXX/2015), including the special treatment of
agricultural income.
·
adopt
outstanding reforms on the codes on income tax, and tax procedures: introduce a
new Criminal Law on Tax Evasion and Fraud to amend the Special Penal Law
2523/1997 and any other relevant legislation, and replace Article 55, ¶s 1 and
2, of the TPC, with a view, inter alia, to modernize and broaden the definition
of tax fraud and evasion to all taxes; abolish all Code of Book and Records
fines, including those levied under law 2523/1997 develop the tax framework for
collective investment vehicles and their participants consistently with the ITC
and in line with best practices in the EU.
·
adopt
legislation to upgrade the organic budget law to: (i) introduce a framework for
independent agencies; (ii) phase out ex-ante audits of the Hellenic Court of
Auditors and account officers (ypologos); (iii) give GDFSs exclusive financial
service capacity and GAO powers to oversee public sector finances; and (iv)
phase out fiscal audit offices by January 2017.
·
increase
the rate of the tonnage tax and phase out special tax treatments of the
shipping industry.
By September 2015, (i) simplify the personal income tax credit schedule;
(ii) re-design and integrate into the ITC the solidarity surcharge for income
of 2016 to more effectively achieve progressivity in the income tax system;
(iii) issue a circular on fines to ensure the comprehensive and consistent
application of the TPC; (iv) and other remaining reforms as specified in ¶9 of
the IMF Country Report No. 14/151.
On health care, effective as of July 1, 2015, (i) re-establish full INN
prescription, without exceptions, (ii) reduce as a first step the price of all
off-patent drugs to 50 percent and all generics to 32.5 percent of the patent
price, by repealing the grandfathering clause for medicines already in the
market in 2012, and (iii)) review and limit the prices of diagnostic tests to
bring structural spending in line with claw back targets; and (iv) collect in
the full the 2014 clawback for private clinics, diagnostics and
pharmaceuticals, and extend their 2015 clawback ceilings to 2016.
Launch the Social Welfare Review under the agreed terms of reference
with the technical assistance of the World Bank to target savings of ½ percent
of GDP which can help finance a fiscally neutral gradual roll-out of the GMI in
January 2016.
Adopt legislation to:
·
reduce
the expenditure ceiling for military spending by €100 million
in 2015 and by €200 million in 2016 with a targeted set of actions, including a
reduction in headcount and procurement;
·
introduce reform of the income tax code, [inter alia
covering capital taxation], investment vehicles, farmers and the self-
employed, etc.;
·
raise the corporate tax rate from 26% to 28%;
·
introduce tax on television advertisements;
·
announce international public tender for the
acquisition of television licenses and usage related fees of relevant
frequencies; and
·
extend implementation of luxury tax on recreational
vessels in excess of 5 meters and increase the rate from 10% to 13%, coming
into effect from the collection of 2014 income taxes and beyond;
·
extend Gross Gaming Revenues (GGR) taxation of 30% on
VLT games expected to be installed at second half of 2015 and 2016;
·
generate revenues through the issuance of 4G and 5G
licenses.
We will consider some compensating measures, in case
of fiscal shortfalls: (i) Increase the tax rate to income for rents, for annual
incomes below €12,000 to 15% (from 11%) with an additional revenue of €160
million and for annual incomes above €12,000 to 35% (from 33%) with an
additional revenue of €40 million; (ii)
the corporate income tax
will increase by an additional percentage point (i.e. from 28% to 29%) that
will result in additional revenues of €130 million.
4. Pension reform
The Authorities recognise that the pension system is unsustainable and
needs fundamental reforms. This is why they will implement in full the 2010
pension reform law (3863/2010), and implement in full or replace/adjust the
sustainability factors for supplementary and lump-sum pensions from the 2012
reform as a part of the new pension reform in October 2015 to achieve
equivalent savings and take further steps to improve the pension system.
Effective from July 1, 2015 the authorities will phase-in reforms that
would deliver estimated permanent savings of ¼-½ percent of GDP in 2015 and 1
percent of GDP on a full year basis in 2016 and thereafter by adopting
legislation to:
·
create
strong disincentives to early retirement, including the adjustment of early
retirement penalties, and through a gradual elimination of grandfathering to
statutory retirement age and early retirement pathways progressively adapting
to the limit of statutory retirement age of 67 years, or 62 and 40 years of
contributions by 2022, applicable for all those retiring (except arduous
professions, and mothers with children with disability) with immediate
application;
·
adopt
legislation so that withdrawals from the Social Insurance Fund will incur an
annual penalty, for those affected by the extension of the retirement age
period, equivalent to 10 percent on top of the current penalty of 6 percent;
·
integrate
into ETEA all supplementary pension funds and ensure that, starting January 1,
2015, all supplementary pension funds are only financed by own contributions;
·
better
target social pensions by increasing OGA uninsured pension;
·
Gradually
phase out the solidarity grant (EKAS) for all pensioners by end-December 2019.
This shall be legislated immediately and shall start as regards the top 20% of
beneficiaries in March 2016 with the modalities of the phase out to be agreed
with the institutions;
·
freeze
monthly guaranteed contributory pension limits in nominal terms until 2021;
·
provide
to people retiring after 30 June 2015 the basic, guaranteed contributory, and
means tested pensions only at the attainment of the statutory normal retirement
age of currently 67 years;
·
increase
the health contributions for pensioners from 4% to 6% on average and extend it
to supplementary pensions;
·
phase
out all state-financed exemptions and harmonize contribution rules for all
pension funds with the structure of contributions to IKA from 1 July 2015;
Moreover, in order to restore the sustainability of the pension system,
the authorities will by 31 October 2015, legislate further reforms to take
effect from 1 January 2016; (i) specific
design and parametric improvements to establish a closer link between
contributions and benefits; (ii) broaden and modernize the contribution and
pension base for all self-employed, including by switching from notional to
actual income, subject to minimum required contribution rules; (iii) revise and
rationalize all different systems of basic, guaranteed contributory and means
tested pension components, taking into account incentives to work and
contribute; (iv) the main elements of a comprehensive SSFs consolidation,
including any remaining harmonization of contribution and benefit payment rules
and procedures across all funds; (v) abolish all nuisance charges financing
pensions and offset by reducing benefits or increasing contributions in
specific funds to take effect from 31 October 2015; and (vi) harmonize pension
benefit rules of the agricultural fund (OGA) with the rest of the pension
system in a pro rata manner, unless OGA is merged into other funds. The
consolidation of social insurance funds will take place by end 2017. In 2015,
the process will be activated through legislation to consolidate the social
insurance funds under a single entity and the operational consolidation will
have been completed by 31 December 2016. Further reductions in the operating
costs and a more effective management of fund resources including improved
balancing of needs between better-off and poorer-off funds will be actively
encouraged.
The authorities will adopt legislation to fully offset the fiscal
effects of the implementation of court rulings on the 2012 pension reform.
In parallel to the reform of the pension system, a Social Welfare Review
will be carried out to ensure fairness of the various reforms.
The institutions are prepared to take into account other parametric
measures within the pension system of equivalent effect to replace some of the
measures mentioned above, taking into account their impact on growth, and
provided that such measures are presented to the institutions during the design
phase and are sufficiently concrete and quantifiable, and in the absence of
this the default option is what is specified above.
5. Public Administration, Justice and Anti
Corruption
Adopt legislation to:
·
reform
the unified wage grid, effective 1 January, 2016, setting the key parameters in
a fiscally neutral manner and consistent with the agreed wage bill targets and
with comprehensive application across the public sector, including
decompressing the wage distribution across the wage spectrumin connection with
the skill, performance and responsibility of staff. (The authorities will also
adopt legislation to rationalise the specialised wage grids, by end-November
2015);
·
align
non-wage benefits such as leave arrangements, per diems, travel allowances and
perks, with best practices in the EU, effective 1 January 2016;
·
establish
within the new MTFS ceilings for the wage bill and the level of public
employment consistent with achieving the fiscal targets and ensuring a
declining path of the wage bill relative to GDP until 2019;
·
hire
managers and assess performance of all employees (with the aim to complete the
hiring of new managers by 31 December 2015 subsequent to a review process)
·
introduce
a new permanent mobility scheme applied by Q4 2015. The scheme will promote the
use of job description and will be linked with an online database that will
include all current vacancies. Final decision on employee mobility will be
taken by each service concerned. This will rationalize the allocation of
resources as well as the staffing across the General Government.
·
reform
the Civil Procedure Code, in line with previous agreements; introduce measures to reduce the backlog of
cases in administrative courts; work closely with European institutions and
technical assistance on e-justice, mediation and judicial statistics
·
strengthen
the governance of ELSTAT. It shall cover (i) the role and structure of the
Advisory bodies of the Hellenic Statistical System, including the recasting of
the Council of ELSS to an advisory Committee of the ELSS, and the role of the
Good Practice Advisory Committee (GPAC); (ii) the recruitment procedure for the
President of ELSTAT, to ensure that a President of the highest professional
calibre is recruited, following transparent procedures and selection criteria;
(iii) the involvement of ELSTAT as appropriate in any legislative or other
legal proposal pertaining to any statistical matter; (iv) other issues that
impact the independence of ELSTAT, including financial autonomy, the
empowerment of ELSTAT to reallocate existing permanent posts and to hire staff
where it is needed and to hire specialised scientific personnel, and the
classification of the institution as a fiscal policy body in the recent law
4270/2014; role and powers of Bank of Greece in statistics in line with
European legislation.
·
Publish
a revised Strategic Plan against Corruption by 31 July 2015. Amend and
implement the legal framework for the declaration of assets and financing of
the political parties and adopt legislation insulating financial crime and
anti-corruption investigations from political intervention in individual cases.
Moreover, in collaboration with
the OECD, the Authorities will:
·
Strengthen
controls in public entities and especially SOEs. Empower the Line Ministries to
perform robust audit and control inspections to supervised entities including
SOEs.
·
Strengthen
controls and internal audit processes in high spending Local Government
Institutions and their supervised legal entities.
·
Strengthen
controls in public and private investment cases funded either by national or
co-funded by other sources, public works and public procurement (e.g. in health
sector, SDIT).
·
Strengthen
transparency and control processes and skills in tax and customs authorities.
·
Assess major
risks in the public procurement cycle, taking in consideration the recent
developments (Central Purchasing and e-Procurement: KHMDHS and ESHDHS) and the
need to have a clear governance framework. Develop strategy according to the
assessment(Q4 2015)
·
Implement
strategy to mitigate public procurement risks.(Q1 2016)
·
Assess 2
specific sectors, Health and Public Works in order to understand the existing
constrains related to corruption and waste risks and propose measures to
address them. Develop and implement strategy. (Q4 2015)
6. Tax administration
Take the following actions to:
·
Adopt
legislation to establish an autonomous revenue agency, that specifies: (i) the
agency’s legal form, organization, status, and scope; (ii) the powers and
functions of the CEO and the independent Board of Governors; (iii) the
relationship to the Minister of Finance and other government entities; (iv) the
agency’s human resource flexibility and relationship to the civil service; (v)
budget autonomy, with own GDFS and a new funding formula to align incentives
with revenue collection and guarantee budget predictability and flexibility;
(vi) reporting to the government and parliament; and (vii) the immediate
transfer of all tax- and customs-related capacities and duties and all tax- and
customs-related staff in SDOE and other entities to the agency.
·
on
garnishments, adopt legislation to eliminate the 25 percent ceiling on wages
and pensions and lower all thresholds of €1,500 while ensuring in all cases
reasonable living conditions; accelerate procurement of IT infrastructure to
automatize e-garnishment; improve tax debt write-off rules; remove tax
officers’ personal liabilities for not pursuing old debt; remove restrictions
on conducting audits of tax returns from 2012 subject to the external tax
certificate scheme; and enforce if legally possible upfront payment collection
in tax disputes.
·
amend
(i) the 2014–15 tax and SSC debt instalment schemes to exclude those who fail
to pay current obligations and introduce a requirement for the tax and social
security administrations to shorten the duration for those with the capacity to
pay earlier and introduce market-based interest rates; the LDU and KEAO will
assess by September 2015 the large debtors with tax and SSC debt exceeding €1
million (e.g. verify their capacity to pay and take corrective action) and (ii)
the basic instalment scheme/TPC to adjust the market-based interest rates and
suspend until end-2017 third-party verification and bank guarantee
requirements.
·
adopt
legislation to accelerate de-registration procedures and limit VAT
re-registration to protect VAT revenues and accelerate procurement of network
analysis software; and provide the Presidential Decree needed for the
significantly strengthening the reorganisation of the VAT enforcement section
in order to strengthen VAT enforcement and combat VAT carousel fraud. The authorities
will submit an application to the EU VAT Committee and prepare an assessment of
the implication of an increase in the VAT threshold to €25.000.
·
combat
fuel smuggling, via legislative measures for locating storage tanks (fixed or
mobile);
·
Produce
a comprehensive plan with technical assistance for combating tax evasion which
includes (i) identification of undeclared deposits by checking bank
transactions in banking institutions in Greece or abroad, (ii) introduction
of a voluntary disclosure program with
appropriate sanctions, incentives and verification procedures, consistent with
international best practice, and without any amnesty provisions (iii) request
from EU member states to provide data on asset ownership and acquisition by
Greek citizens, (iv) renew the request for technical assistance in tax
administration and make full use of the resource in capacity building, (v)
establish a wealth registry to improve monitoring.
·
develop
a costed plan for the promotion of the use of electronic payments, making use
of the EU Structural and Investment Fund;
·
Create
a time series database to monitor the balance sheets of parent-subsisdiary
companies to improve risk analysis criteria for transfer pricing
7. Financial sector
Adopt: (i) amendments to the corporate and household insolvency laws
including to cover all debtors and bring the corporate insolvency law in line
with the OCW law; (ii) amendments to the household insolvency law to introduce
a mechanism to separate strategic defaulters from good faith debtors as well as
simplify and strengthen the procedures and introduce measures to address the
large backlog of cases; (iii) amendments to improve immediately the judicial
framework for corporate and household insolvency matters; (iv) legislation to
establish a regulated profession of insolvency administrators, not restricted
to any specific profession and in line with good cross-country experience; (v)
a comprehensive strategy for the financial system: this strategy will build on
the strategy document from 2013, taking into account the new environment and
conditions of the financial system and with a view of returning the banks in
private ownership by attracting international strategic investors and to
achieve a sustainable funding model over the medium term; and (vi) a holistic
NPL resolution strategy, prepared with the help of a strategic consultant.
8. Labour market
Launch a consultation process to review the whole range of existing
labour market arrangements, taking into account best practices elsewhere in Europe . Further input to the consultation process
described above will be provided by international organisations, including the
ILO. The organization and timelines shall be drawn up in consultation with the
institutions. In this context, legislation on a new system of collective
bargaining should be ready by Q4 2015. The authorities will take actions to
fight undeclared work in order to strengthen the competitiveness of legal
companies and protect workers as well as tax and social security revenues.
9. Product market
Adopt legislation to:
·
implement
all pending recommendations of the OECD
competition toolkit I, except OTC pharmaceutical products, starting with: tourist buses, truck licenses,
code of conduct for traditional foodstuff, eurocodes on building materials, and
all the OECD toolkit II recommendations on beverages and petroleum products;
·
In
order to foster competition and increase consumer welfare immediately launch a
new competition assessment, in collaboration and with the technical support of
the OECD, on wholesale trade, construction, e-commerce and media. The
assessment will be concluded by Q1 2016.The recommendations will be adopted by
Q2 2016.
·
open
the restricted professions of engineers, notaries, actuaries, and bailiffs and
liberalize the market for tourist rentals ;
·
eliminate
non-reciprocal nuisance charges and align the reciprocal nuisance charges to
the services provided;
·
reduce
red tape, including on horizontal licensing requirements of investments and on
low-risk activities as recommended by the World Bank, and administrative burden
of companies based on the OECD recommendations, and (ii) establish a committee
for the inter-ministerial preparation of legislation. Technical assistance of
the World Bank will be sought to implement the easing of licensing
requirements.
·
design
electronic one-stop shops for businesses through analysing information
obligations businesses have to comply with, structuring them accordingly and
helping to design a project on developing the necessary ICT tools and
infrastructure (Q3 2015). Setting up the institutional & co-ordination
structure, identification of the business life events to be included,
identification and mapping of information obligations & administrative
procedures and training of officials (Q4 2015). Launch (Q1 2016)
·
adopt
the reform of the gas market and its specific roadmap, and implementation
should follow suit.
·
take
irreversible steps (including announcement of date for submission of binding
offers) to privatize the electricity transmission company, ADMIE, or provide by
October 2015 an alternative scheme, with equivalent results in terms of
competition, in line with the best European practices to provide full ownership
unbundling from PPC, while ensuring independence.
On electricity markets, the authorities will reform the capacity
payments system and other electricity market rules to avoid that some plants
are forced to operate below their variable cost, and to prevent the netting of
the arrears between PPC and market operator; set PPC tariffs based on costs,
including replacement of the 20% discount for HV users with cost based tariffs;
and notify NOME products to the European Commission. The authorities will also
continue the implementation of the roadmap to the EU target model prepare a new
framework for the support of renewable energies and for the implementation of
energy efficiency and review energy taxation; the authorities will strengthen
the electricity regulator’s financial and operational independence;
10. Privatization
·
The
Board of Directors of the Hellenic Republic Asset Development Fund will approve
its Asset Development Plan which will include for privatisation all the assets
under HRDAF as of 31/12/2014; and the Cabinet will endorse the plan.
·
To
facilitate the completion of the tenders, the authorities will complete all
government pending actions including those needed for the regional airports,
TRAINOSE, Egnatia, the ports of Pireaus and Thessaloniki
·
The
government and HRADF will announce binding bid dates for Piraeus and
Thessaloniki ports of no later than end-October 2015, and for TRAINOSE ROSCO,
with no material changes in the terms of the tenders.
·
The
government will transfer the state's shares in OTE to the HRADF.
·
Take
irreversible steps for the sale of the regional airports at the current terms
with the winning bidder already selected.
[1] The fiscal path to reach the
medium term primary surplus target of 3.5% will be discussed with the
institutions, in light of recent economic developments.
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