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Financial Mirror (Cyprus) - - FRONT PAGE -

The first round of the new re­view of Greece’s Eco­nomic Adjustment Pro­gramME (EAP) kickED off in Paris on Tues­day and will last un­til Thurs­day. The IMF spokesman has re­cently clar­i­fied that the aim of th­ese meet­ings is to “dis­cuss the way for­ward on the forth­com­ing re­view and is ex­pected to be fol­lowed by the full mis­sion to Athens in late Septem­ber” for the full re­view.

Apart from the place – out­side Greece for the first time – a new el­e­ment of th­ese dis­cus­sions is that the IMF staff team will be led by Rishi Goyal and not by Poul Thom­sen, who has re­cently been ap­pointed Act­ing Di­rec­tor of the IMF Euro­pean Depart­ment and will not at­tend the Paris meet­ings.

The Greek mis­sion con­sists of the Min­is­ters of Fi­nance Gikas Har­dou­velis, De­vel­op­ment Nikos Den­dias, Labour Yian­nis Vrout­sis, Ad­min­is­tra­tive Re­form Kyr­i­akos Mitsotakis, Jus­tice Char­alam­bos Athana­siou and the Al­ter­nate Fi­nance Min­is­ter Chris­tos Staik­ouras.

Fol­low­ing a se­ries of meet­ings with Prime Min­is­ter An­to­nis Sa­ma­ras on Mon­day, the Fi­nance Min­is­ter scaled down the high ex­pec­ta­tions that had been wide­spread in the past few days on im­mi­nent agree­ment re­gard­ing tax re­lief mea­sures.

Asked to com­ment on the Greek pri­or­i­ties in the up­com­ing meet­ings in Paris, he stressed that “our pri­or­ity is to in­crease our cred­i­bil­ity. With in­creased cred­i­bil­ity, we can achieve more in the fu­ture”.

Lo­cal me­dia in­di­cate that dis­cus­sions will touch upon the fis­cal gap for 2015, tax breaks, ad­just­ments to the sin­gle prop­erty tax (ENFIA), pro­tec­tion of pri­mary res­i­dence from fore­clo­sure for another year, in­crease in the num­ber of in­stal­ments for un­paid taxes and set­tle­ment of mount­ing non-per­form­ing loans (NPLs).

In ad­di­tion, fur­ther ad­just­ments in the so­cial se­cu­rity funds, labour mar­ket and pub­lic sec­tor will be part of the next Troika re­view. They key is­sues in­volve the con­sol­i­da­tion of pri­mary so­cial se­cu­rity funds (SSF), the fund­ing of SSFs, change in the sta­tus of col­lec­tive dis­missals in the pri­vate sec­tor and re­dun­dan­cies in the pub­lic sec­tor.

The im­ple­men­ta­tion of struc­tural re­forms is also key in this re­view with the Fi­nance Min­is­ter not­ing on Mon­day that “we have made good progress in many ar­eas and we will dis­cuss (with the troika) all re­cent de­vel­op­ments”.

On the fis­cal gap for 2015, re­cent re­ports cit­ing MoF sources in­di­cate that it is es­ti­mated at 900 mln by the Greek gov­ern­ment and at 2 bln by the Troika in­sti­tu­tions. It is not clear whether th­ese fig­ures in­cor­po­rate the ex­pense that emerged from the Coun­cil of State rul­ing to re­verse the 10% wage cut im­posed on mem­bers of the armed forces and emer­gency ser­vices.

The is­sue of tax breaks has been raised by the gov­ern­ment as a top pri­or­ity theme for the next round of ne­go­ti­a­tions with the Troika and pri­mar­ily in­volves two spe­cific taxes:

The first is the sol­i­dar­ity levy im­posed on in­comes in 2011, with the gov­ern­ment propos­ing a 50% cut. The Troika is re­port­edly op­pos­ing such a de­vel­op­ment since it brings 1.4 bln in the pub­lic cof­fers and has not yet been con­vinced on the equiv­a­lent mea­sures that could elim­i­nate the emerg­ing gap in rev­enues.

The sec­ond key tax is­sue is the pro­posed cut by 20-30% in the ex­cise tax on heat­ing oil, which had been raised to the same level as the ex­cise tax on ve­hi­cle fuel in au­tumn 2012.

The im­posed tax­a­tion had a ma­te­rial neg­a­tive so­cial bur­den, since cit­i­zens re­sorted to al­ter­na­tive sources of heat­ing mainly burn­ing wood and wood prod­ucts with a con­se­quent neg­a­tive im­pact on their qual­ity of life and air pol­lu­tion.

In ad­di­tion, there was also a clearly neg­a­tive im­pact on pub­lic fi­nances, since the net rev­enue short­fall from heat­ing oil stood at 750 mln for the 2-year pe­riod.

The gov­ern­ment is also aim­ing at re­tain­ing the VAT rate on ac­com­mo­da­tion and food ser­vices at 13% for another year, while its medium-term tar­gets in­volve the grad­ual re­duc­tion of the cor­po­rate tax rate from 26 to 15% and the rate of the up­per tax scale for phys­i­cal per­sons from 42 to 33%.

Another is­sue re­lated to tax rev­enues is the height­ened amount of new un­paid taxes which reached 7.24 bln in 2014, im­ply­ing an av­er­age in­crease by 1.03 bln per month. In­clud­ing legacy tax debt (cre­ated by the end of 2013), the out­stand­ing ag­gre­gate tax debt reached 68 bln at the end of July. Mount­ing tax debt presents a se­ri­ous threat on tax col­lec­tion in the fu­ture and the Greek gov­ern­ment is propos­ing a sig­nif­i­cant in­crease in the num­ber of in­stal­ments for un­paid taxes to 100. Nev­er­the­less, the troika in­spec­tors have not ac­cepted such a de­vel­op­ment so far.

Lo­cal me­dia in­di­cate that the gov­ern­ment prefers a re­view com­ple­tion by Oc­to­ber 15, be­fore the dis­clo­sure of the out­come of EU-wide stress tests on Greek banks’ cap­i­tal needs.

How­ever, the troika is re­port­edly fa­vor­ing a de­layed con­clu­sion in or­der to in­cor­po­rate Greek banks’ po­ten­tial cap­i­tal needs in the ne­go­ti­a­tions for the iden­ti­fi­ca­tion of fund­ing gap and de­ci­sions on debt re­lief mea­sures along with the com­ple­tion of the EAP re­view.

The com­ple­tion of the sixth re­view by the IMF will pave the way for the dis­burse­ment of its next tranche of 3.5 bln, while the next (and last) tranche by the EFSF stands at 1.8 bln.

The agenda of this re­view in­cludes a se­ries of crit­i­cal is­sues that should be re­solved and agreed in all fronts and would the last and most cru­cial ahead of the over­ar­ch­ing is­sue of debt re­lief mea­sures. All pre­vi­ous ne­go­ti­a­tions with the Troika had neg­a­tive po­lit­i­cal and so­cial reper­cus­sions and re­mains to be seen whether this re­view in a pe­riod of GDP re­bound and with a new Fi­nance Min­is­ter in place will yield a more mean­ing­ful out­come.

Fi­nance Min­is­ter Gikas Har­dou­velis heads the Greek del­e­ga­tion dur­ing the Troika dis­cus­sion in Paris

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