EFFECTS BY THE INTRODUCTION OF THE MEASURES IN THE NEW AGREEMENT

Unquestionably, by reaching an agreement for starting negotiations aiming at a third financial support programme for the Greek economy what has been avoided was not a planned reversion into a national currency, but a disorderly default of the country. However, the prerequisite measures for starting the procedure of negotiations, as submitted for voting to the Greek Parliament are intensely ones of a recession nature.

The effects by the implementation of these measures in an already bleeding economy will be firstly shown in the decrease of GDP, which, according to IME GSEVEE estimations, will fluctuate at about 3,5% and in a further reduction of the average net disposable income of households. This fact will have obvious consequences in consumption, domestic production, and investments planning by enterprises. This reduction in household disposable income emerges from the following measures:

- Increase of the extraordinary solidarity contribution (gradually increasing) regarding the income of this year;

- Increase of the tax on enterprises’ profits to 29% from 26% and increase of tax prepayment to 100% from 55% (in 2015 the relevant increase will stand at 75%);

- Increase of the contribution to the health sector regarding core pensions (from 4% to 6%) and supplementary pensions (from 0% to 6%);

- Increase of the tax rate on profits by pursuing an agricultural activity (from 13% to 26%);

- Maintenance of ENFIA (property tax), without adjustment to new rateable values or other parameters (loan, vacancy etc.);

- Increase of rent taxes for the bottom rate from 11% to 15%.

In addition, a recession effect will be brought about from the increase in indirect taxation as well. According to the family budget survey of ELSTAT for the year 2014, published in July 2015, the average monthly consumption expenditure decreased from € 1956.42 in 2010, to € 1460.52 in 2014. This decrease on average exceeds 25%.

The categories of products and services, which during the crisis were the most hardly hit with regard to demand, have been the following:

- In the category of food-stuffs, the average monthly expenditure of households fell from € 351.67 to € 299.79 (a decrease by 14,7%, a fact that represents the relevant inelasticity in the consumption of these products);

- In the category of clothing and footwear, the average monthly expenditure fell from € 140.84 to € 85.7 (a decrease by 39.2%);

- In the category of housing, the average monthly expenditure fell from € 228.82 in 2010 to € 195.29 in 2014 (a decrease by 14.7%);

- In the category of health, the average monthly expenditure fell from € 124.43 in 2010 to € 105.76 in 2014 (a decrease by 15%). In this category there is trend for inelasticity, but also a significant burden due to the increase of the contribution of households to the contribution for medicines and medical examinations;

- In the category of transport, the average monthly expenditure fell from € 264.87 in 2010 to € 184.82 in 2015 (a decrease by 30.2%);

- In the category of restaurants and catering, café - confectioneries, and hotels, the average monthly expenditure decreased from € 209.75 to € 143.9 (a decrease by 31.6%). 

With VAT rates increase in food-stuffs, transportation, and restaurants and catering (from 13% to 23%) a significant increase of final prices is expected in all these categories, with consumers significantly burdened with regard to products where there is a low elasticity of demand (primary necessities, housing, health and transport).

IME GSEVEE estimation is that there will be a minimum decrease of the overall expenditure by € 60 per household in a monthly basis (€ 720 annually).

Taking into account the abolition of the special VAT scheme for the island regions, the abolition of the reduced tax on heating oil and the increase in burdens for professionals in the primary sector (taxation on agricultural products), significant additional price increases are expected in the production and supply chain of products in the agri-foodstuffs sector, which will be eventually shifted to the end consumer.

Supposing that there is a positive correlation between the available income and household consumption expenditure, and that inelastic expenditure has to do with food-stuffs, health, and housing, then we expect that by imposing new indirect tax burdens, there will be a redirection of household expenditure to the benefit of inelastic goods (primary necessities, housing, health, and transport) and at the expense of the consumption of goods with high elasticity of demand (restaurants and catering, clothing and footwear, entertainment). This means that based on these assumptions a further decrease in turnover will be expected mainly in the sectors of restaurants and caterings and clothing and footwear, with severe effects in the employment in these sectors.

THE NEW FRAMEWORK OF REFORMS

The institutions strongly raised the need to restore the OECD toolkit as a precondition for the implementation of structural reforms. Noteworthy, from the 300 structural reforms proposed in the OECD toolkit as a whole, only few have not been fully implemented due to the obvious ineffectiveness of these measures to improve the domestic production dynamics.

In particular, the reforms that foresaw:

- the possibility to supply OTC medicines in stores other than pharmacies,

- the implementation of regulations for the way of supplying milk, olive oil, and bread further to the traditional ways,

- opening-up shops on Sundays

received full disdain by the Greek economic actors, as these reforms did not meet any problem of extroversion, innovation, and reconstruction of the production base of Greece, but they contributed to the enlargement of the concentration and the reduction of country’s competitive advantages. IME GSEVEE estimation is that by implementing these measures there will be neither a restructuring of the production, nor an employment increase.  

CONCLUSIONS

The figures show that there will be reduction of consumers’ purchasing power due to the increase of indirect taxation, as well as a reduction of nominal available income due to the increase of direct taxation and the reduction of pensions. It is obvious that the Greek economy will once more enter into a deep recession; a fact that marks new closures of enterprises and further increase of unemployment.  

Based on the stifling situation of the economy now and taking into account that this situation will get worse, the best that can be expected is a swift stabilisation of the economy into the new facts. However, to make this happen, a speedy unblocking of capitals is needed for investments, exploiting the growth package by the European Commission and a fairer redistribution of the wealth produced towards the socially weaker groups. The basic precondition for achieving this tough objective is the stable political situation in our country.

GSEVEE calls the government and the institutions, during the implementation of the 3rd support programme, to proceed in a bold and mutual way to a redirection of the unfruitful economic austerity policy and to a redetermination of objectives for the Greek economy.  

ANNEX- AN INDICATIVE EXAMPLE

Supposing that there is an enterprise (sole proprietorship) with a total of € 20,000 profits.

The tax on profits is 29%, and the prepayment of tax for 2015 is 75%.

At the same time, there are also the burdens of the profession tax and the extraordinary solidarity contribution.

In the case that the entrepreneur owes one establishment, then he/she will have to pay a profession tax of € 650.

The extraordinary solidarity contribution in this category would be 0.7%.

The new total burden will be € 2,000 which is drawn out from the available income, demand, and consumption.

* The fact that, with regard to housing needs, entrepreneur will have to pay either a rent for the main residence, or ENFIA, is not taken into account.