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Newsletter July 2011

HIGHLIGHT

New Measures Approved

In its bid to further increase state revenue and reduce state expenditures, Greece has launched a new wave of measures designed to create a more healthy, competitive, and sustainable economy.

The Greek government tabled in parliament a Medium-Term Fiscal Strategy Framework for the economy envisaging a new round of austerity measures designed to bring in overall revenues of 28.259 billion Euros by 2015, as well as a 50 billion Euros privatisation programme. The programme was passed in the 300-member unicameral parliament on June 28.

Tax measures are expected to generate 6.537 billion Euros by the end of the current year, of which 700 million Euros will be from cutbacks in the national Public Investments Programme.

The planning includes an extraordinary "solidarity contribution" by higher income taxpayers and the income threshold for taxation is now for annual incomes over 8,000 Euros.

The Medium-Term programme hopes to raise nearly 28.3 billion Euros, distributed over 2011-2015. The measures plan to generate: 6.5 billion Euros, or 23.1 percent of the overall amount, in 2011; 6.8 billion Euros, or 24 percent, in 2012; 5.2 billion Euros, or 18.5 percent, in 2013; 5.4 billion Euros, or 19.3 percent, in 2014; and 4.3 billion Euros, or 15.1 percent, in 2015.

According to the Medium-Term framework, revenues will arise from: rationalisation of the salary expenditure (2.2 billion Euros or 0.9 percent of GDP); reductions in operational expenditure (0.6 billion Euros or 0.2 percent of GDP); abolitions and mergers of state agencies (0.8 billion Euros or 0.3 percent of GDP); restructuring of the DEKO public utilities and organisations (1.3 billion Euros or 0.6 percent of GDP); reduction of defence expenditures (0.6 billion Euros or 0.2 percent of GDP); rationalisation of health spending (0.8 billion Euros or 0.3 percent of GDP); rationalisation of medical/pharmaceutical expenditure (1 billion Euros or 0.4 percent of GDP); reduction of social security expenditure and rationalisation of social spending (4.5 billion Euros or 1.9 percent of GDP); improvement of social security organisations' revenues and clampdown on contribution-evasion (3 billion Euros, or 1.3 percent of GDP); enhancement of tax compliance (3 billion Euros or 1.2 percent of GDP); reduction in tax exemptions and increase in other tax revenues (6.1 billion Euros or 2.7 percent of GDP); increase in local government revenues (1.4 billion Euros or 0.6 percent of GDP); rationalisation of Public Investments Programme (0.5 billion Euros or 0.2 percent GDP); general measures (1.4 billion Euros or 0.6 percent of GDP); and provisions (1.2 billion Euros or 0.5 percent of GDP).

The measures for rationalisation of the salary expenditure are distributed as follows: 800 million Euros in 2011, 660 million Euros in 2012, 398 million Euros in 2013, 246 million Euros in 2014, and 71 million Euros in 2015. They include limitation of public sector hiring to a ratio of 1 hiring per 10 withdrawals this year and 1:5 in 2015; suspension of salary maturation raises; increase of working hours from 37.5 to 40 hours per week; reduction of expenditure for overtime, further reduction of remuneration for committees, reduction of number of contract employees (by 50 percent in 2011 and by 10 percent each over the following years of the programme), and through the implementation of voluntary part-time employment in the public sector and unpaid leave.

The operational expenditure will be reduced through a 7 percent withholding in state operational spending, the implementation of an electronic procurements platform, and other steps.

The reduction of subsidies to agencies not designated as general government agencies concerns only 2011, and will save 291 million Euros.
From the abolition and merger of state agencies, the state will save a further 200 million Euros this year, 89 million Euros in 2012, 102 million Euros in 2013, 70 million Euros in 2014, and 19 million Euros in 2015.

The restructuring of the DEKO includes measures to boost the revenues of commuter services and other utilities and sate organisations, their restructuring, the sale of non-strategic activities, reduction of expenditure for personnel, cutback of the salary cost, sale of assets and reduction of operational expenses, and savings from abolitions and mergers.

The reduction in defense expenditure will arise from savings from the armaments programme.

In the health sector, a special fee will be imposed on companies exempted from the non-smoking law (generating 40 million Euros in 2011); increase in state hospitals' revenues through: a) special agreements for provision of services to private insurance companies, b) billing of foreign nationals (for care provided), and c) containment of services to the uninsured, while a new 'health charter' will be introduced, a central system of procurements will be created in the hospitals, and fixed prices will be set for medical services, while a National Primary Health Organisation will also be established.

For rationalisation of the medical/pharmaceutical expenditure, measures include expansion of the list of medicines not requiring prescription, a new pricing policy on medicines, and expansion of the electronic prescription system through checks on hand-written prescriptions.

As for the denationalisations and exploitation of state property programme, the target is to generate 50 billion Euros by 2015, of which 15 billion Euros by the end of 2012.

Amendments
Newly appointed Finance Minister Evangelos Venizelos announced a series of improvements in a draft legislation which will implement a Mid-term Fiscal Strategy Programme for the period 2012-2015.

The changes, which the Greek Finance Minister characterised as “generous measures of social sensitivity”, envisage raising a tax-exempt income ceiling for families with more than one child. Under the changes, the tax-exempt income ceiling for families with one child will be raised by 2,000, with two children by 4,000, for three children by 12,500 Euros and by 2,500 Euros for each child more than three. “The result is a very significant tax relief for families with several children,” Mr. Venizelos said.

Another change envisages that handicapped people would be burdened with an extra tax charge, while a 5.0 percent windfall tax on the incomes of deputies and elected municipal authorities would be expanded to include ministry high-ranking officials and the heads of all organisations and enterprises appointed directly, or indirectly, by the state.