Monday, 9 March 2015

The confidence game

The Greek government says it is satisfied with a political-level agreement at Monday's Eurogroup meeting. 

Though the single currency bloc's finance ministers only discussed Greece for 20 minutes, Athens is hailing this as a first step towards implementing a Feb. 20 framework agreement that aims to bring Greece back to fiscal health and normalise its relations with creditors. 

However, Monday's Eurogroup statement did not even mention Greece, suggesting that creditors have not yet committed to any of the measures. 
Revellers at this year's Apokries (carnival) parade on the island of Angistri, southwest of Athens, dressed up as finance minister Yanis Varoufakis. He has achieved both fame and notoriety through his flamboyant style and media exposure. Monday's Eurogroup was the fourth of his six-week tenure, and the only one so far not to end in either a rupture or a controversial compromise.

Technical teams are to carry the discussion forward on Wednesday. These will meet in Brussels, as Athens wants to avoid the reappearance of inspectors of the the so-called troika of creditors - the European Union and Central Bank, and the International Monetary Fund. 


Those inspectors had given Greece the appearance, as well as the reality, of a debt colony, the government has said. In what the opposition is likely to seize upon as a major concession, Eurogroup chairman Jeroen Dijsselbloem revealed that inspection teams would also be arriving in Athens. 

However the government has not agreed to this, and will not officially comment on Dijsselbloem's remarks. Government spokesman Gavriil Sakellaridis re-iterated on Tuesday that inspectors will not set foot in Athens. 

If Dijsselbloem is borne out by events, that would be the second concession forced upon the leftwing government in Athens, after it accepted an extension of the austerity programme rather than risk losing all financial backing.

Reforms

The government plans to prioritise six measures from among a slate of reforms it proposed on February 23. It hopes in this way to win the trust of its voters and creditors alike.

Its aim at home is to come through on election promises, and to appear to do so. Its aim abroad is to secure the release of 7.2 billion euros in loan instalments. Those have been frozen until May, but the government needs them to pay debt due this month.

The confidence-building measures presented to the Eurogroup on March 9, are:

1. The implementation of a Fiscal Council, which will advise the government on drafting annual budgets and carry out long-term economic planning. This, premier Alexis Tsipras told Der Spiegel, will prevent him or any other prime minister from spending their way back to primary deficits.

2. Amending the Organic Budget Law, so that ministries over- rather than under-estimate their expenditures for the coming year. This would help ensure that spending is within forecasts. Greece actually managed to keep its expenditure under forecast for 2013 and 2014, the two years in which it produced primary surpluses.

3. A flexible body of laypeople who will catch out retailers who don’t issue receipts. This is the most fanciful of the proposals, and seems likely to be replaced by a last-minute addendum – a VAT lottery to reward people who submit retail receipts. The aim is still the same – to maximize income from VAT, which makes up a huge proportion of the public revenue. Last year it accounted for 13.6 billion euros[1], from a total of 44.2 billion euros in tax revenue. Compare this to a mere 2.7bn euros raised from corporate tax, and 7.8bn euros raised through personal income tax, because the number of working people has fallen during the crisis to a mere 3.5 million[2].

4. A new incentive for taxpayers to clear their arrears. The government will forgive all fines and interest on tax and social security arrears, if debtors come forward with a sum of equal size, and agree to pay off the balance in an instalment scheme. Alternate finance minister Nadia Valavani presented details of the scheme on February 18, and clarified them last week. This bill is expected to go to parliament this month. 

A last-minute addition would provide a similar incentive to high net worth tax-evaders to pay up. The government has reviewed the income tax declarations of people with more than 200,000 euros in the bank and found a discrepancy of roughly 7bn euros. It believes it can collect 2.5-3bn euros in taxes from them, especially by providing them with a carrot of amnesty from interest and fines on amounts, and a stick of property repossession. 

5. A clampdown on online gaming. The government believes it can make another 500 million euros a year on what it estimates to be a 3bn euro industry. The government has other plans for clamping down on large-scale tax evasion, for instance in the fuel haulage business, estimating benefits of up to 1.5bn euros for the treasury. While that legislation remains in the works, the government says it will clamp down on a particular type of corporate tax evasion - the understatement of the value of imported goods through fraudulent invoicing. 

6. Streamlining the public sector. This is a mammoth task, but the government wants to begin by enforcing a simple rule - that no branch of the state will ask voters to fetch documents it can find in another branch. Such internal communication could save the private sector untold man hours.

7. Humanitarian relief. This is not strictly a reform, but it is a top government priority, and its inclusion in the first clutch of legislation is a political imperative. A bill to subsidise food, housing and electricity for the destitute was the first to be submitted to parliament by this government on March 3.


[1] Source for all budget figures: General Accounting Office, Ministry of Finance, budget execution bulletin Jan-Dec 2014
[2] Source: Elstat

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