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Home / News / Economy / +++Greece rejects IMF’s proposals for Corporate Tax, Pension Cuts & 23% VAT in food

+++Greece rejects IMF’s proposals for Corporate Tax, Pension Cuts & 23% VAT in food

Hardly had Greek Prime Minister Alexis Tsipras stepped at Brussels airport and the creditors started to throw stones on his way to the meeting with Institutions. They have reportedly submitted a new proposal as they do not agree with Greece’s equivalent measures.

It is said that especially the IMF rejects Greek government proposals to raise corporate tax from 26% now to 29% as well as the health care contributions increase to pensioners.

According to private Mega TV at 2 pm News:

the creditors’ proposal for corporate tax is 28% (!!).

An obviously angry Tsipras criticized the IMF and especially the IMF’s technical staff Poul Thomsen for rejected equivalent fiscal measures. Tsipras tweeted short before his meeting with Jean-Claude Juncker, Mario Draghi and Christine Lagarde.

However the game is not lost and according to Reuters‘ “EU source” negotiations continue.

“Nothing has broken down, negotiations are going on and the meeting with Tsipras will go ahead as planned.”

“Positions before the meeting with Tsipras are still apart on many points,” the source said, listing pensions, VAT and corporate taxation. “There was not much progress yesterday.”

According to latest information from Mega TV, creditors submitted a new proposal to Greece and government sources said that “this proposal cannot be accepted.”

1% of GDP in pension cuts = 2 billion euro

scrap low-pension allowance (EKAS) by end of 2017

Put majority of products (also food now 13%) to 23% Value Added Tax

Corporate tax at 28%

I must repeat here that I disagree with Greek proposal to increase health care contributions to pensioners for reasons I explained here.

The IMF wants cuts in public spending and not revenue increases as the Greek proposal.

However what difference will the 1% make in terms of boosting the collapsed Greek economy?

Meanwhile Greek media report from Brussels that Tsipras will have a meeting with Juncker first, then with Draghi and Lagarde. The Institutions ECB, IMF and EC had a meeting with Eurogroup’s Dijsselbloem and EFSF’ Klaus Regling.

PS and then all together may play music chairs….

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  1. It is VERY obvious that the IMF will not allow the Greek government (or anybody else for that matter) implement policies that make the rich pay. “Contributions” must be extracted from the poorer legions of society, with the “leaders” needing constant cushioning from any possible loss of income or God-forbid “wealth” because of “new measures”.

    • With 93% of the money in Greek government’s proposal coming from tax increases, a modest shift of the balance towards less spending hardly qualifies as “not allowing the Greek government … to implement policies that make the rich pay”. It also makes the plan a bit more credible, since collecting taxes has proven more challenging than not spending the money in the first place. Of course, the big deal is that this would cross the last remaining political red lines SYRIZA has of no pension or salary reductions whatsoever.

      • Garbage. The important thing is NOT to cut spending in a depression. Collection of taxes from the rich is crucial, but without the support of the crooks in the Eurogroup may be difficult.

        Basically, the IMF is going against mainstream economic thinking. They are signing their own death warrant, and will soon be out of work.

        • “The important thing is NOT to cut spending in a depression.”

          This is only true if the spending does not have to be paid for by higher taxes. The effect on the economy is the same whether one spends less because her salary was reduced, or one spends less because the government increased her taxes (_provided she spends_). We are beyond the point in the negotiations where the Greek government can be more generous without paying for it. They already agreed with creditors on the size of the primary surplus for the next 3,5 years (1%, 2%, 3% and 3,5% for 2015-2018). As I see it, now the discussions are around the margins.

          • Completely wrong. The relative impacts of employment reduction and specific taxation increases are shown in economic models, and are not a matter of opinion.
            May I ask: are you highly trained in economics? Do you state these things from professional competence — or incompetence, in fact — or are you just recycling Troika propaganda here? I know the answer, of course.
            So, kindly cut the crap.

      • Is that so? The two main sticking points are VAT and pensions. As already pointed out many times, many of the pensioners in Greece live on or below the breadline since the last round of cuts. Any more cuts will simply result in a massive increase in poverty amongst the most vulnerable group of citizens. It is quite as simple as that…
        Now, VAT. In 2013, the IMf released a 28 page document called “Anatomy of VAT”. In it, a few very telling facts are exposed. ie. The most telling one is this. By implementing VAT (a departure from a uniform tax rate), revenue income of the various states that implemented the system changed. The idea behind implementing VAT was to increase tax intake from the unsuspecting citizens. These citizens are divided into 3 categories, depending on income. So what did VAT do to increased revenue from these groups?

        In the high income group, there has been only a modest increase: from a little under 7 percent to a little over. Elsewhere, however, the increase has been marked: upper middle income countries now raise about as much from the VAT as do high income, and in low income countries VAT revenue has about doubled since the mid-1990s.

        IT is pretty obvious who gets hit hardest by this system. It is therefore also very obvious who will get hit again with increases in VAT rates…

        • The neoliberal propagandists — both here and internationally — will deny all of these facts, and frankly I am sick of dealing with them. We are basically talking with liars and idiots. Deciding which is which is the only difficulty, but in reality it matters little.

        • @ephilant, I agree that VAT impacts more people whose purchases are affected by VAT, compared to those that save their money. However, at this stage in the negotiation the question is not whether to introduce VAT or not. It is already introduced in Greece. Furthermore, there is already an agreement what the three levels of VAT rates are. The only question is what rate applies to which category of goods.

          Looking at the three creditors’ changes in their counter-proposal, I would think that the VAT increase of at restaurants and catering establishments will not impact the poorest Greeks. Let the rich foreign tourist and Greeks pay 10% more. It is difficult for me to judge how big of a deal it is for the poor to have the reduced 6% rate apply only to “pharmaceuticals” rather than “medical supplies” (as proposed by the Greek government). Then there is a question of “processed basic foods”, which are taxed at 13% under the government proposal, but would shift to 23% under the counter-proposal. I would guess that the poor rely a lot on purchases of basic bread and yogurt. However, cookies and ice-cream are probably not that critical for them. Maybe, the Greek government can make a counter-counter offer that will have very specific exceptions for some processed basic foods, paid for by higher taxes on “books and theater”, which are probably not the biggest item on the budgets of the poor.

          • Giaourti Giaourtaki

            Let’s kill the poor or in what kind of restaurant will the “rich foreign tourists” go as then again 40.000 jobs get lost in this sector, I guess that’s the same reason why business-people in Greece are pro re-instalment of the old minimum wage, they are no desk culprits.
            The other 200.000 that will loose their job in the tourism sector will all find a cool mini-job in booing Libya, they only need boats to travel there but EU-funds to buy some German shit from Düsseldoof Boat Fare will help.

          • What you think will impact is neither here nor there. What matters is what the economic models show will be the impact. The probability is that the biggest impact will be on the revenues of the family business tavernas and restaurants — already under terrible financial strain.

            Moreover, as eph has stated (and this I remember reading in my public economics textbooks of the 1980s) indirect taxes as opposed to direct taxes hit the poor and middle income groups. A shift from direct to indirect taxes (as Thatcher did) has an immediate effect of transfer of wealth from poor to rich. This is the neoliberal dream — to make the poor pay for the billionaires of this world. We are almost there, but the Gorgon Lagarde wants to drag Greece further into the mire.

  2. Giaourti Giaourtaki

    Some angry anonymous speaker: “Instead of scrapping EKAS let’s send in EKAM and put’em all in custody for these odious debts”
    Just a few days left to get all ironclad proofs…

  3. It was very clear last night that the IMF has decided to impose its political views on Greece. The Lagarde woman apparently stated that she is cannot support the political ideology of the Greek government.

    Since the IMF proposal will destroy the Greek economy, this leaves Greece with no alternative other than to default. Lagarde will have created a world crisis, with the first ever default to the IMF actually caused by the IMF. I hope the stupid woman is proud of herself.

    • keeptalkinggreece

      I just got feed back from Portugal IMf raised VAt form 6% to 23% with very few exceptions like milk & bread.

      • The 13% VAT rate remains for “unprocessed food, energy, water and hotels”. The change for this category is replacing “basic food” (in Greek government’s proposal) with “unprocessed food”, and dropping the reduced rate for “catering/restaurants”.

        The 6% VAT rate from Greek government’s proposal is almost intact. The only change is replacing “medical supplies” with “pharmaceuticals”. In addition, “books and theater” remain in that category. (As a side note — who needs cheaper theater if the economic crisis is such a drama).

      • Portugal will be the next to quit the euro.

      • Giaourti Giaourtaki

        Raised from 19%:
        Standard VAT rate: 23% (Jan 2011)
        Reduced VAT rates: 13% foodstuffs, agricultural supplies
        Reduced VAT rates: 6% foodstuffs, books, pharmaceutical, medical, newspapers, hotels, passenger transport
        Also islands have reduced VAT

  4. I noticed that in multiple places the creditors corrected fuzzy statements in Greek government’s proposal to make them mean something. For example, exception for “arduous professions, mothers with children with disability, and other special categories” loses the “other special categories” loophole (p.3); “abolish most of the nuisance charges financing pensions” becomes “abolish all of the nuisance charges financing pensions” (p.5); etc.