Reform Watch Greece has been here a long time (2011), and we have seen our fair share of Greek reform proposals. Since the Eurogroup quickly blessed the Greek submission February 25th as enough to work with for the next four months, there is not much point in overanalyzing these starting positions. Greece will be fortunate if even one quarter of these reforms can be implemented by mid-2015. Below we provide the text of Greece’s reform proposals as publicized early on February 25, WITH SHORT ANNOTATED COMMENTARY ON EACH SECTION (Bold headers).
Dear President of the Eurogroup, In the Eurogroup of 20 February 2015 the Greek government was invited to present to the institutions, by Monday 23rd February 2015, a first comprehensive list of reform measures it is envisaging, to be further specified and agreed by the end of April 2015.
In addition to codifying its reform agenda, in accordance with PM Tsipras’ programmatic statement to Greece’s Parliament, the Greek government also committed to working in close agreement with European partners and institutions, as well as with the International Monetary Fund, and take actions that strengthen fiscal sustainability, guarantee financial stability and promote economic recovery.
The first comprehensive list of reform measures follows below, as envisaged by the Greek government. It is our intention to implement them while drawing upon available technical assistance and financing from the European Structural and Investment Funds.
Truly
Yanis Varoufakis
Minister of Finance
Hellenic Republic
RWG Comments: While this is a good introduction, it needed to mention at least once in this section the Greek side’s commitment to take no measures with a budgetary impact. Its omission tells us something but it was clearly not a deal-breaker. It also drops an oft-mocked phrase used by Minister Varoufakis in earlier documents about the new government’s “commitment to broader and deeper reforms.”
- Fiscal structural policies
Tax policies – Greece commits to:
Reform VAT policy, administration and enforcement. Robust
efforts will be made to improve collection and fight evasion
making full use of electronic means and other technological
innovations. VAT policy will be rationalised in relation to
rates that will be streamlined in a manner that maximises actual
revenues without a negative impact on social justice, and with a
view to limiting exemptions while eliminating unreasonable
discounts.
Modify the taxation of collective investment and income tax
expenditures which will be integrated in the income tax code.
Broaden definition of tax fraud and evasion while disbanding
tax immunity.
Modernising the income tax code and eliminating from it tax
code exemptions and replacing them, when necessary, with social
justice enhancing measures.
Resolutely enforce and improve legislation on transfer
pricing.
Work toward creating a new culture of tax compliance to ensure
that all sections of society, and especially the well-off,
contribute fairly to the financing of public policies. In this
context, establish with the assistance of European and
international partners, a wealth database that assists the tax
authorities in gauging the veracity of previous income tax
returns.
RWG Comments: With few details it is rather difficult to get a true sense of the priorities, for instance will there be a focused “chase the rich” campaign or simply a raft of new legislation? Everything here sounds well-intentioned and designed to increase tax collections but we must see which tax code changes are coming in which order and which privileges will remain in place for those groups that helped to elect the current government. We did not expect Greece’s Eurozone partners to find much fault other than to ask for a timeline and details.
Public Finance Management – Greece will:
Adopt amendments to the Organic Budget Law and take steps to
improve public finance management. Budget implementation will be
improved and clarified as will control and reporting
responsibilities. Payment procedures will be modernised and
accelerated while providing a higher degree of financial and
budgetary flexibility and accountability for independent and/or
regulatory entities.
Devise and implement a strategy on the clearance of arrears,
tax refunds and pension claims.
Turn the already established (though hitherto dormant) Fiscal
Council into a fully operational entity.
RWG Comments: Generally positive but without details on the arrears clearance mechanisms to be used, any evaluation is difficult.
Revenue administration – Greece will modernise the tax and
custom administrations benefiting from available technical
assistance. To this end Greece will:
Enhance the openness, transparency and international reach of
the process by which the General Secretary of the General
Secretariat of Public Revenues is appointed, monitored in terms
of performance, and replaced.
Strengthen the independence of the General Secretariat of
Public Revenues (GSPR), if necessary through further
legislation, from all sorts of interference (political or
otherwise) while guaranteeing full accountability and
transparency of its operations. To this end, the government and
the GSPR will make full use of available technical assistance.
Staff adequately, both quantitatively and qualitatively, the
GSPR and in particular the high wealth and large debtors units
of the revenue administration and ensure that it has strong
investigative/prosecution powers, and resources building on
SDOE’s capacities, so as to target effectively tax fraud by, and
tax arrears of, high income social groups. Consider the merits
of integrating SDOE into GSPR.
Augment inspections, risk-based audits, and collection
capacities while seeking to integrate the functions of revenue
and social security collection across the general government.
RWG Comments: This was probably well received, although the systemic changes mentioned are unlikely to have visible short term impact in the Greek context. We believe use of foreign tax and customs advisors and collectors in the short and medium term would be far more efficient in terms of boosting revenue collection and for training, but this remains an almost taboo subject in Greece. At least the Greek side seems open to use of foreign technical assistance, but Greece has almost always utilized small amounts of help on tax system reform, including the EU Task Force which has been present since the first year of the Greek crisis.
Public spending – The Greek authorities will:
Review and control spending in every area of government
spending (e.g. education, defense, transport, local government,
social benefits)
Work toward drastically improving the efficiency of central
and local government administered departments and units by
targeting budgetary processes, management restructuring, and
reallocation of poorly deployed resources.
Identify cost saving measures through a thorough spending
review of every Ministry and rationalisation of non-salary and
non-pension expenditures which, at present, account for an
astounding 56% of total public expenditure.
Implement legislation (currently in draft form at the General
Accounts Office – GAO) to review non-wage benefits expenditure
across the public sector.
Validate benefits through cross checks within the relevant
authorities and registries (e.g. Tax Number Registry, AMKA
registry) that will help identify non-eligible beneficiaries.
Control health expenditure and improve the provision and
quality of medical services, while granting universal access. In
this context, the government intends to table specific proposals
in collaboration with European and international institutions,
including the OECD.
RWG Comments: The proposed cost savings steps noted here are not all new ideas, and in any event will take a long period for implementation. Cutting high public sector non-wage costs should find favor with creditors, but is not a new concept. The final bullet in this set is interesting as it is generally moving Greece in the direction of the EU; in earlier periods health sector reforms that lowered direct health care costs (esp access to prescription drugs) ran into intense opposition. Accordingly we need to see these proposals in final form for details.
Social security reform – Greece is committed to continue
modernising the pension system. The authorities will:
Continue to work on administrative measures to unify and
streamline pension policies and eliminate loopholes and
incentives that give rise to an excessive rate of early
retirements throughout the economy and, more specifically, in
the banking and public sectors.
Consolidate pension funds to achieve savings.
Phase out charges on behalf of ‘third parties’ (nuisance
charges) in a fiscally neutral manner.
Establish a closer link between pension contributions and
income, streamline benefits, strengthen incentives to declare
paid work, and provide targeted assistance to employees between
50 and 65, including through a Guaranteed Basic Income scheme,
so as to eliminate the social and political pressure for early
retirement which over-burdens the pension funds.
RWG Comments: We do not see much that is new here, although the focus on eliminating early public and banking sector retirement incentives gets needed attention; some work has been done in this area already. This segment of proposals should be non-controversial with creditors but will take years for implementation and each cost-cutting step faces strong resistance here in Greece.
Public administration & corruption – Greece wants a modern
public administration. It will:
Turn the fight against corruption into a national priority and
operationalize fully the National Plan Against Corruption.
Target fuel and tobacco products’ smuggling, monitor prices of
imported goods (to prevent revenue losses during the importation
process), and tackle money laundering. The government intends
immediately to set itself ambitious revenue targets, in these
areas, to be pursued under the coordination of the newly
established position of Minister of State.
Reduce (a) the number of Ministries (from 16 to 10), (b) the
number of ‘special advisors’ in general government; and (c)
fringe benefits of ministers, Members of Parliament and top
officials (e.g. cars, travel expenses, allowances)
Tighten the legislation concerning the funding of political
parties and include maximum levels of borrowing from financial
and other institutions.
Activate immediately the current (though dormant) legislation
that regulates the revenues of media (press and electronic),
ensuring (through appropriately designed auctions) that they pay
the state market prices for frequencies used, and prohibits the
continued operation of permanently loss-making media outlets
(without a transparent process of recapitalisation)
Establish a transparent, electronic, real time institutional
framework for public tenders/procurement – re-establishing
DIAVGEIA (a side-lined online public registry of activities
relating to public procurement)
Reform the public sector wage grid with a view to
decompressing the wage distribution through productivity gains
and appropriate recruitment policies without reducing the
current wage floors but safeguarding that the public sector’s
wage bill will not increase
Rationalise non-wage benefits, to reduce overall expenditure,
without imperiling the functioning of the public sector and in
accordance with EU good practices
Promote measures to: improve recruitment mechanisms, encourage
merit-based managerial appointments, base staff appraisals on
genuine evaluation, and establish fair processes for maximising
mobility of human and other resources within the public sector.
RWG Comments: Many of the topics in this cluster strike us as basic good governance/public administration issues and may be incorrectly classified as structural reform. This is a matter of labeling and semantics. That said, they can certainly be added to government priorities but not in exchange for other hard reform measures. Charging powerful Greek media companies for public goods used free (frequencies) will be a major challenge, and is a reform that is over 25 years late.
- Financial stability
Instalment schemes – Greece commits to
Improve swiftly, in agreement with the institutions, the
legislation for repayments of tax and social security arrears
Calibrate instalment schemes in a manner that helps
discriminate efficiently between: (a) strategic
default/non-payment and (b) inability to pay; targeting case (a)
individuals/firms by means of civil and criminal procedures
(especially amongst high income groups) while offering case (b)
individuals/firms repayment terms in a manner that enables
potentially solvent enterprises to survive, averts free-riding,
annuls moral hazard, and reinforces social responsibility as
well as a proper re-payment culture.
De-criminalise lower income debtors with small liabilities
Step up enforcement methods and procedures, including the
legal framework for collecting unpaid taxes and effectively
implement collection tools
RWG Comments: The SYRIZA government has legislation ready on tax collection, this segment is simply an explanation of the approach. Creditors will likely want adjustments in some areas, and tougher controls on the moral hazard area. RWG warns against any discounting of the initial tax bill amount for late payers, as this simply encourages the next cycle to wait and game the system before payment. Bottom line: Acceptable to adjust penalties for late payers but It must always remain more cost effective to pay a bill when due.
Banking and Non-Performing loans. Greece is committed to:
Banks that are run on sound commercial/banking principles
Utilise fully the Hellenic Financial Stability Fund and
ensure, in collaboration with the SSM, the ECB and the European
Commission, that it plays well its key role of securing the
banking sector’s stability and its lending on commercial basis
while complying with EU competition rules.
Dealing with non-performing loans in a manner that considers
fully the banks’ capitalisation (taking into account the adopted
Code of Conduct for Banks), the functioning of the judiciary
system, the state of the real estate market, social justice
issues, and any adverse impact on the government’s fiscal
position.
Collaborating with the banks’ management and the institutions
to avoid, in the forthcoming period, auctions of the main
residence of households below a certain income threshold, while
punishing strategic defaulters, with a view to: (a) maintaining
society’s support for the government’s broad reform program, (b)
preventing a further fall in real estate asset prices (that
would have an adverse effect on the banks’ own portfolio), (c)
minimising the fiscal impact of greater homelessness, and (d)
promoting a strong payment culture. Measures will be taken to
support the most vulnerable households who are unable to service
their loans
Align the out-of-court workout law with the instalment schemes
after their amendment, to limit risks to public finances and the
payment culture, while facilitating private debt restructuring.
Modernise bankruptcy law and address the backlog of cases
RWG Comments: Much of this cluster depends on improving the efficiency of the judicial system, not addressed previously but covered below. Creditors will not be impressed with the focus in this section on social justice instead of banking system efficiency; if anything the outlines presented here appear to weaken the prospects for Greece developing a strong payment culture.
III. Policies to promote growth
Privatisation and public asset management – To attract
investment in key sectors and utilise the state’s assets
efficiently, the Greek authorities will:
Commit not to roll back privatisations that have been
completed. Where the tender process has been launched the
government will respect the process, according to the law.
Safeguard the provision of basic public goods and services by
privatised firms/industries in line with national policy goals
and in compliance with EU legislation.
Review privatisations that have not yet been launched, with a
view to improving the terms so as to maximise the state’s long
term benefits, generate revenues, enhance competition in the
local economies, promote national economic recovery, and
stimulate long term growth prospects.
Adopt, henceforth, an approach whereby each new case will be
examined separately and on its merits, with an emphasis on long
leases, joint ventures (private-public collaboration) and
contracts that maximise not only government revenues but also
prospective levels of private investment.
Unify (HRDAF) with various public asset management agencies
(which are currently scattered across the public sector) with a
view to developing state assets and enhancing their value
through microeconomic and property rights’ reforms.
RWG Comments: Clearly this subject is anathema to much of the SYRIZA electorate which considers inclusion of this issue in the reform list a major loss. Creditors will need to push hard for changes here as privatization should become the major channel for attracting private investment into Greece and this section still contains excessive restrictions. We are especially concerned the future of the process will be left in limbo without deeper Greek commitments to do more.
Labor market reforms – Greece commits to:
Achieve EU best practice across the range of labour market
legislation through a process of consultation with the social
partners while benefitting from the expertise and existing input
of the ILO, the OECD and the available technical assistance.
Expand and develop the existing scheme that provides temporary
employment for the unemployed, in agreement with partners and
when fiscal space permits and improve the active labour market
policy programmes with the aim to updating the skills of the
long term unemployed.
Phasing in a new ‘smart’ approach to collective wage
bargaining that balances the needs for flexibility with
fairness. This includes the ambition to streamline and over time
raise minimum wages in a manner that safeguards competiveness
and employment prospects. The scope and timing of changes to the
minimum wage will be made in consultation with social partners
and the European and international institutions, including the
ILO, and take full account of advice from a new independent body
on whether changes in wages are in line with productivity
developments and competitiveness.
RWG Comments: As in the previous section this subject is problematic to much of the SYRIZA electorate who will view its inclusion in the reform list as a major concession and divergence from the party’s announced policies. Moving in the direction of EU best labor practices is not massively problematic nor an unreasonable target, but reverting to older collective bargaining processes, even with new names and tweaks to the system, will be seen for what it is, a reform rollback.
Product market reforms and a better business environment – As
part of a new reform agenda, Greece remains committed to:
Removing barriers to competition based on input from the OECD.
Strengthen the Hellenic Competition Commission.
Introduce actions to reduce the burdens of administrative
burden of bureaucracy in line with the OECD’s input, including
legislation that bans public sector units from requesting (from
citizens and business) documents certifying information that the
state already possesses (within the same or some other unit).
Better land use management, including policies related to
spatial planning, land use, and the finalisation of a proper
Land Registry
Pursue efforts to lift disproportionate and unjustified
restrictions in regulated professions as part of the overall
strategy to tackle vested interests.
Align gas and electricity market regulation with EU good
practices and legislation
RWG Comments: Not particularly new, and not problematic, but implementation needs to be given top priority, especially competition policy and the high priority development of a business enabling environment. The energy sector needs a major focused initiative if Greece is to exploit its competitive advantages, not just a brief mention.
Reform of the judicial system – The Greek government will:
Improve the organisation of courts through greater
specialisation and, in this context, adopt a new Code of Civil
Procedure.
Promote the digitisation of legal codes and the electronic
submission system, and governance, of the judicial system.
RWG Comments: Absolutely essential to Greece’s modernization.
Statistics – The Greek government reaffirms its readiness to:
Honour fully the Commitment on Confidence in Statistics, and
in particular the institutional independence of ELSTAT, ensuring
that ELSTAT has the necessary resources to implement its work
programme.
Guarantee the transparency and propriety of the process of
appointment of the ELSTAT President in September 2015, in
cooperation with EUROSTAT.
RWG Comments: Unclear why this needs to be included as a current reform, since the institutional changes at ELSTAT were completed several years ago.
- Humanitarian Crisis – The Greek government affirms its plan
to:
Address needs arising from the recent rise in absolute poverty
(inadequate access to nourishment, shelter, health services and
basic energy provision) by means of highly targeted
non-pecuniary measures (e.g. food stamps).
Do so in a manner that is helpful to the reforming of public
administration and the fight against bureaucracy/corruption
(e.g. the issuance of a Citizen Smart Card that can be used as
an ID card, in the Health System, as well as for gaining access
to the food stamp program etc.).
Evaluate the pilot Minimum Guaranteed Income scheme with a
view to extending it nationwide.
Ensure that its fight against the humanitarian crisis has no
negative fiscal effect.
RWG Comments: Mostly derived from SYRIZA campaign promises and the Thessaloniki program. Creditors will not find major issues as long as these reforms are not fiscally negative.
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