Alexis Tsipras Angela Merkel
Greek Prime Minister Alexis Tsipras made case for reparations during meeting with German Chancellor Angela Merkel Reuters

The proposed Greek fiscal package put forward to the EU late on 9 July covers pension reforms, which gradually adapts to a statutory retirement age of 67 years, an increase in corporate tax, and cut in military spending and personnel. A draft of the proposal was published by Greek media overnight.

The plan proposes a 2015 supplementary budget and a 2016-19 medium-term fiscal strategy that is "supported by a sizeable and credible package of measures".

The new fiscal strategy is based on a primary surplus target of 1% of GDP in 2015, 2% in 2016, 3% in 2017 and 3.5% in 2018.

The proposal includes eliminating loopholes in the law for tax avoidance and even introducing a new Criminal Law on Tax Evasion and Fraud, and phase out the special tax treatment given to the shipping industry, including increasing the rate of the tonnage tax.

Corporate tax will be raised from 26% to 28%, with a provision to raise it further to 29% should there be fiscal shortfalls. A tax on television advertisements will be imposed.

The government is also proposing to privatise all assets held under the Hellenic Republic Asset Development Fund as well as privatise the electricity transmission company ADMIE.

Proposed revenue generating legislations

Other revenue generating legislations proposed include:

  • reducing military expenditure ceiling by €100m in 2015 and by €200m in 2016 and cutting cutting headcount and procurement
  • launching an international public tender for the acquisition of television licences and usage related fees of relevant frequencies
  • extending the implementation of luxury tax on recreational vessels more than 5 meters and increasing the rate from 10% to 13%
  • extending the Gross Gaming Revenues tax of 30% to video lottery terminal games expected to be installed in the second half of 2015 and 2016
  • the issuance of 4G and 5G licences.

On fiscal changes, legislation will be adopted to close loopholes for income tax avoidance, which includes tightening the definition of farmers. There will also be new rule requiring 100% advance payments for corporate income, which will gradually be extended to individual business income tax by 2017.

The government is also planning to phase out the preferential tax treatment of farmers by 2017 and raise the solidarity surcharge.

It is also planning to give the General Directorate of Financial Services exclusive financial service capacity and the General Accounting Office powers to oversee public sector finances. It plans to phase out fiscal audit offices by January 2017, including the phasing out of ex-ante audits of the Hellenic Court of Auditors and account officers.

VAT reforms

The government is proposing to reform the VAT system, targeting a net revenue gain of 1% of GDP on an annual basis from parametric changes. The new VAT rates on islands and hotels will take effect from October 2015. The VAT rate may be reviewed at the end of 2016, depending on the equivalent additional revenues collected through measures against tax evasion and improved collections of VAT.

The new VAT system will:

  • unify the rates at a standard 23% and includes restaurants and catering
  • impose a reduced 13% rate for basic food, energy, hotels and water (excluding sewage)
  • have a "super-reduced" rate of 6% for pharmaceuticals, books and theatre
  • streamline exemptions to broaden the base and raise the tax on insurance
  • eliminate discounts on islands, starting with those with higher incomes and the most popular tourist destinations, except for the most remote ones.

Pension reforms

On pension reform, the government said the current pension system is unsustainable and needed fundamental reforms. As part of the reforms, it plans to adopt legislation to:

  • create strong disincentives for early retirement which includes imposing early retirement penalties. It also plans to progressively adapt to the statutory retirement age of 67 years or 62 and 40 years of contributions by 2022
  • gradually phase out the solidarity grant for all pensioners by end 2019
  • impose annual penalties for withdrawals from the Social Insurance Fund, and for those affected by new retirement age, the penalty will be equivalent to 10% on top of the current penalty of 6%
  • freeze monthly guaranteed contributory pension limits in nominal terms until 2021.