Greece: Prior Actions

Policy Commitments and Actions to be taken in consultation with EC/ECB/IMF staff:
1. 2015 supplementary budget and 2016-19 MTFS1
Adopt effective as of July 1, 2015 a supplementary 2015 budget and a 2016–19 medium-term fiscal strategy, supported by a
sizable and credible package of measures. The new fiscal path is premised on a primary surplus target of (1, 2, 3), and 3.5 percent
of GDP in 2015, 2016, 2017 and 2018. The package includes VAT reforms (¶2), other tax policy measures (¶3), pension reforms
(¶4), public administration reforms (¶5), reforms addressing shortfalls in tax collection enforcement (¶6), and other parametric
measures as specified below.
2. VAT reform
Adopt legislation to reform the VAT system that will be effective as of July 1, 2015. The reform will target a net revenue gain of
1 percent of GDP on an annual basis from parametric changes. The new VAT system will: (i) unify the rates at a standard 23
percent rate, which will include restaurants and catering, and a reduced 13 percent rate for basic food, energy, hotels, and water
(excluding sewage), and a super-reduced rate of 6 percent for pharmaceuticals, books, and theater; (ii) streamline exemptions to
broaden the base and raise the tax on insurance; and (iii) Eliminate discounts on islands, starting with the islands with higher
incomes and which are the most popular tourist destinations, except the most remote ones. This will be completed by end-2016,
as appropriate and targeted fiscally neutral measures to compensate those inhabitants that are most in need are determined. The
new VAT rates on hotels and islands will be implemented from October 2015.
The increase of the VAT rate described above may be reviewed at the end of 2016, provided that equivalent additional revenues
are collected through measures taken against tax evasion and to improve collectability of VAT. Any decision to review and revise
shall take place in consultation with the institutions.
1

The fiscal path to reach the medium term primary surplus target of 3.5% will be discussed with the institutions, in light of recent economic developments.

3. Fiscal structural measures
Adopt legislation to:
• close possibilities for income tax avoidance (e.g., tighten the definition of farmers), take measures to increase the
corporate income tax in 2015 and require 100 percent advance payments for corporate income and gradually for individual
business income tax by 2017; phase out the preferential tax treatment of farmers in the income tax code by 2017; raise the
solidarity surcharge;
•

abolish subsidies for excise on diesel oil for farmers and better target eligibility to halve heating oil subsidies expenditure
in the budget 2016;

•

in view of any revision of the zonal property values, adjust the property tax rates if necessary to safeguard the 2015 and
2016 property tax revenues at €2.65 billion and adjust the alternative minimum personal income taxation.

•

eliminate the cross-border withholding tax introduced by the installments act (law XXXX/2015) and reverse the recent
amendments to the ITC in the public administration act (law XXXX/2015), including the special treatment of agricultural
income.

•

adopt outstanding reforms on the codes on income tax, and tax procedures: introduce a new Criminal Law on Tax Evasion
and Fraud to amend the Special Penal Law 2523/1997 and any other relevant legislation, and replace Article 55, ¶s 1 and
2, of the TPC, with a view, inter alia, to modernize and broaden the definition of tax fraud and evasion to all taxes; abolish
all Code of Book and Records fines, including those levied under law 2523/1997 develop the tax framework for collective
investment vehicles and their participants consistently with the ITC and in line with best practices in the EU.

•

adopt legislation to upgrade the organic budget law to: (i) introduce a framework for independent agencies; (ii) phase out
ex-ante audits of the Hellenic Court of Auditors and account officers (ypologos); (iii) give GDFSs exclusive financial
service capacity and GAO powers to oversee public sector finances; and (iv) phase out fiscal audit offices by January
2017.

•

increase the rate of the tonnage tax and phase out special tax treatments of the shipping industry.

By September 2015, (i) simplify the personal income tax credit schedule; (ii) re-design and integrate into the ITC the solidarity
surcharge for income of 2016 to more effectively achieve progressivity in the income tax system; (iii) issue a circular on fines to
ensure the comprehensive and consistent application of the TPC; (iv) and other remaining reforms as specified in ¶9 of the IMF
Country Report No. 14/151.
On health care, effective as of July 1, 2015, (i) re-establish full INN prescription, without exceptions, (ii) reduce as a first step the
price of all off-patent drugs to 50 percent and all generics to 32.5 percent of the patent price, by repealing the grandfathering
clause for medicines already in the market in 2012, and (iii)) review and limit the prices of diagnostic tests to bring structural
spending in line with claw back targets; and (iv) collect in the full the 2014 clawback for private clinics, diagnostics and
pharmaceuticals, and extend their 2015 clawback ceilings to 2016.
Launch the Social Welfare Review under the agreed terms of reference with the technical assistance of the World Bank to target
savings of ½ percent of GDP which can help finance a fiscally neutral gradual roll-out of the GMI in January 2016.
Adopt legislation to:
•

reduce the expenditure ceiling for military spending by €100 million in 2015 and by €200 million in 2016 with a targeted
set of actions, including a reduction in headcount and procurement;

•

introduce reform of the income tax code, [inter alia covering capital taxation], investment vehicles, farmers and the selfemployed, etc.;

•

raise the corporate tax rate from 26% to 28%;

•

introduce tax on television advertisements;

•

announce international public tender for the acquisition of television licenses and usage related fees of relevant
frequencies; and

•

extend implementation of luxury tax on recreational vessels in excess of 5 meters and increase the rate from 10% to 13%,
coming into effect from the collection of 2014 income taxes and beyond;

•

extend Gross Gaming Revenues (GGR) taxation of 30% on VLT games expected to be installed at second half of 2015
and 2016;

•

generate revenues through the issuance of 4G and 5G licenses.

We will consider some compensating measures, in case of fiscal shortfalls: (i) Increase the tax rate to income for rents, for annual
incomes below €12,000 to 15% (from 11%) with an additional revenue of €160 million and for annual incomes above €12,000 to
35% (from 33%) with an additional revenue of €40 million; (ii) the corporate income tax will increase by an additional
percentage point (i.e. from 28% to 29%) that will result in additional revenues of €130 million.

4. Pension reform

The Authorities recognise that the pension system is unsustainable and needs fundamental reforms. This is why they will
implement in full the 2010 pension reform law (3863/2010), and implement in full or replace/adjust the sustainability factors for
supplementary and lump-sum pensions from the 2012 reform as a part of the new pension reform in October 2015 to achieve
equivalent savings and take further steps to improve the pension system.
Effective from July 1, 2015 the authorities will phase-in reforms that would deliver estimated permanent savings of ¼-½ percent
of GDP in 2015 and 1 percent of GDP on a full year basis in 2016 and thereafter by adopting legislation to:

•

create strong disincentives to early retirement, including the adjustment of early retirement penalties, and through a
gradual elimination of grandfathering to statutory retirement age and early retirement pathways progressively adapting to
the limit of statutory retirement age of 67 years, or 62 and 40 years of contributions by 2022, applicable for all those
retiring (except arduous professions, and mothers with children with disability) with immediate application;

•

adopt legislation so that withdrawals from the Social Insurance Fund will incur an annual penalty, for those affected by the
extension of the retirement age period, equivalent to 10 percent on top of the current penalty of 6 percent;

•

integrate into ETEA all supplementary pension funds and ensure that, starting January 1, 2015, all supplementary pension
funds are only financed by own contributions;

•

better target social pensions by increasing OGA uninsured pension;

•

Gradually phase out the solidarity grant (EKAS) for all pensioners by end-December 2019. This shall be legislated
immediately and shall start as regards the top 20% of beneficiaries in March 2016 with the modalities of the phase out to
be agreed with the institutions;

•

freeze monthly guaranteed contributory pension limits in nominal terms until 2021;

•

provide to people retiring after 30 June 2015 the basic, guaranteed contributory, and means tested pensions only at the
attainment of the statutory normal retirement age of currently 67 years;

•

increase the health contributions for pensioners from 4% to 6% on average and extend it to supplementary pensions;

•

phase out all state-financed exemptions and harmonize contribution rules for all pension funds with the structure of
contributions to IKA from 1 July 2015;

Moreover, in order to restore the sustainability of the pension system, the authorities will by 31 October 2015, legislate further
reforms to take effect from 1 January 2016; (i) specific design and parametric improvements to establish a closer link between
contributions and benefits; (ii) broaden and modernize the contribution and pension base for all self-employed, including by
switching from notional to actual income, subject to minimum required contribution rules; (iii) revise and rationalize all different
systems of basic, guaranteed contributory and means tested pension components, taking into account incentives to work and
contribute; (iv) the main elements of a comprehensive SSFs consolidation, including any remaining harmonization of contribution
and benefit payment rules and procedures across all funds; (v) abolish all nuisance charges financing pensions and offset by
reducing benefits or increasing contributions in specific funds to take effect from 31 October 2015; and (vi) harmonize pension
benefit rules of the agricultural fund (OGA) with the rest of the pension system in a pro rata manner, unless OGA is merged into
other funds. The consolidation of social insurance funds will take place by end 2017. In 2015, the process will be activated
through legislation to consolidate the social insurance funds under a single entity and the operational consolidation will have been
completed by 31 December 2016. Further reductions in the operating costs and a more effective management of fund resources
including improved balancing of needs between better-off and poorer-off funds will be actively encouraged.
The authorities will adopt legislation to fully offset the fiscal effects of the implementation of court rulings on the 2012 pension
reform.
In parallel to the reform of the pension system, a Social Welfare Review will be carried out to ensure fairness of the various
reforms.
The institutions are prepared to take into account other parametric measures within the pension system of equivalent effect to
replace some of the measures mentioned above, taking into account their impact on growth, and provided that such measures are
presented to the institutions during the design phase and are sufficiently concrete and quantifiable, and in the absence of this the
default option is what is specified above.

5. Public Administration, Justice and Anti Corruption
Adopt legislation to:

•

reform the unified wage grid, effective 1 January, 2016, setting the key parameters in a fiscally neutral manner and
consistent with the agreed wage bill targets and with comprehensive application across the public sector, including
decompressing the wage distribution across the wage spectrumin connection with the skill, performance and responsibility
of staff. (The authorities will also adopt legislation to rationalise the specialised wage grids, by end-November 2015);

•

align non-wage benefits such as leave arrangements, per diems, travel allowances and perks, with best practices in the EU,
effective 1 January 2016;

•

establish within the new MTFS ceilings for the wage bill and the level of public employment consistent with achieving the
fiscal targets and ensuring a declining path of the wage bill relative to GDP until 2019;

•

hire managers and assess performance of all employees (with the aim to complete the hiring of new managers by 31
December 2015 subsequent to a review process)

•

introduce a new permanent mobility scheme applied by Q4 2015. The scheme will promote the use of job description and
will be linked with an online database that will include all current vacancies. Final decision on employee mobility will be
taken by each service concerned. This will rationalize the allocation of resources as well as the staffing across the General
Government.

•

reform the Civil Procedure Code, in line with previous agreements; introduce measures to reduce the backlog of cases in
administrative courts; work closely with European institutions and technical assistance on e-justice, mediation and judicial
statistics

•

strengthen the governance of ELSTAT. It shall cover (i) the role and structure of the Advisory bodies of the Hellenic
Statistical System, including the recasting of the Council of ELSS to an advisory Committee of the ELSS, and the role of
the Good Practice Advisory Committee (GPAC); (ii) the recruitment procedure for the President of ELSTAT, to ensure
that a President of the highest professional calibre is recruited, following transparent procedures and selection criteria; (iii)

the involvement of ELSTAT as appropriate in any legislative or other legal proposal pertaining to any statistical matter;
(iv) other issues that impact the independence of ELSTAT, including financial autonomy, the empowerment of ELSTAT
to reallocate existing permanent posts and to hire staff where it is needed and to hire specialised scientific personnel, and
the classification of the institution as a fiscal policy body in the recent law 4270/2014; role and powers of Bank of Greece
in statistics in line with European legislation.
•

Publish a revised Strategic Plan against Corruption by 31 July 2015. Amend and implement the legal framework for the
declaration of assets and financing of the political parties and adopt legislation insulating financial crime and anticorruption investigations from political intervention in individual cases.

Moreover, in collaboration with the OECD, the Authorities will:
•

Strengthen controls in public entities and especially SOEs. Empower the Line Ministries to perform robust audit and
control inspections to supervised entities including SOEs.

•

Strengthen controls and internal audit processes in high spending Local Government Institutions and their supervised legal
entities.

•

Strengthen controls in public and private investment cases funded either by national or co-funded by other sources, public
works and public procurement (e.g. in health sector, SDIT).

•

Strengthen transparency and control processes and skills in tax and customs authorities.

•

Assess major risks in the public procurement cycle, taking in consideration the recent developments (Central Purchasing
and e-Procurement: KHMDHS and ESHDHS) and the need to have a clear governance framework. Develop strategy
according to the assessment(Q4 2015)

•

Implement strategy to mitigate public procurement risks.(Q1 2016)

•

Assess 2 specific sectors, Health and Public Works in order to understand the existing constrains related to corruption and
waste risks and propose measures to address them. Develop and implement strategy. (Q4 2015)

6. Tax administration
Take the following actions to:
•

Adopt legislation to establish an autonomous revenue agency, that specifies: (i) the agency’s legal form, organization,
status, and scope; (ii) the powers and functions of the CEO and the independent Board of Governors; (iii) the relationship
to the Minister of Finance and other government entities; (iv) the agency’s human resource flexibility and relationship to
the civil service; (v) budget autonomy, with own GDFS and a new funding formula to align incentives with revenue
collection and guarantee budget predictability and flexibility; (vi) reporting to the government and parliament; and (vii)
the immediate transfer of all tax- and customs-related capacities and duties and all tax- and customs-related staff in SDOE
and other entities to the agency.

•

on garnishments, adopt legislation to eliminate the 25 percent ceiling on wages and pensions and lower all thresholds of
€1,500 while ensuring in all cases reasonable living conditions; accelerate procurement of IT infrastructure to automatize
e-garnishment; improve tax debt write-off rules; remove tax officers’ personal liabilities for not pursuing old debt; remove
restrictions on conducting audits of tax returns from 2012 subject to the external tax certificate scheme; and enforce if
legally possible upfront payment collection in tax disputes.

•

amend (i) the 2014–15 tax and SSC debt instalment schemes to exclude those who fail to pay current obligations and
introduce a requirement for the tax and social security administrations to shorten the duration for those with the capacity
to pay earlier and introduce market-based interest rates; the LDU and KEAO will assess by September 2015 the large

debtors with tax and SSC debt exceeding €1 million (e.g. verify their capacity to pay and take corrective action) and (ii)
the basic instalment scheme/TPC to adjust the market-based interest rates and suspend until end-2017 third-party
verification and bank guarantee requirements.
•

adopt legislation to accelerate de-registration procedures and limit VAT re-registration to protect VAT revenues and
accelerate procurement of network analysis software; and provide the Presidential Decree needed for the significantly
strengthening the reorganisation of the VAT enforcement section in order to strengthen VAT enforcement and combat
VAT carousel fraud. The authorities will submit an application to the EU VAT Committee and prepare an assessment of
the implication of an increase in the VAT threshold to €25.000.

•

combat fuel smuggling, via legislative measures for locating storage tanks (fixed or mobile);

•

Produce a comprehensive plan with technical assistance for combating tax evasion which includes (i) identification of
undeclared deposits by checking bank transactions in banking institutions in Greece or abroad, (ii) introduction of a
voluntary disclosure program with appropriate sanctions, incentives and verification procedures, consistent with
international best practice, and without any amnesty provisions (iii) request from EU member states to provide data on
asset ownership and acquisition by Greek citizens, (iv) renew the request for technical assistance in tax administration and
make full use of the resource in capacity building, (v) establish a wealth registry to improve monitoring.

•

develop a costed plan for the promotion of the use of electronic payments, making use of the EU Structural and
Investment Fund;

•

Create a time series database to monitor the balance sheets of parent-subsisdiary companies to improve risk analysis
criteria for transfer pricing

7. Financial sector
Adopt: (i) amendments to the corporate and household insolvency laws including to cover all debtors and bring the corporate
insolvency law in line with the OCW law; (ii) amendments to the household insolvency law to introduce a mechanism to separate
strategic defaulters from good faith debtors as well as simplify and strengthen the procedures and introduce measures to address
the large backlog of cases; (iii) amendments to improve immediately the judicial framework for corporate and household
insolvency matters; (iv) legislation to establish a regulated profession of insolvency administrators, not restricted to any specific
profession and in line with good cross-country experience; (v) a comprehensive strategy for the financial system: this strategy will
build on the strategy document from 2013, taking into account the new environment and conditions of the financial system and
with a view of returning the banks in private ownership by attracting international strategic investors and to achieve a sustainable
funding model over the medium term; and (vi) a holistic NPL resolution strategy, prepared with the help of a strategic consultant.
8. Labour market
Launch a consultation process to review the whole range of existing labour market arrangements, taking into account best
practices elsewhere in Europe. Further input to the consultation process described above will be provided by international
organisations, including the ILO. The organization and timelines shall be drawn up in consultation with the institutions. In this
context, legislation on a new system of collective bargaining should be ready by Q4 2015. The authorities will take actions to
fight undeclared work in order to strengthen the competitiveness of legal companies and protect workers as well as tax and social
security revenues.

9. Product market
Adopt legislation to:
•

implement all pending recommendations of the OECD competition toolkit I, except OTC pharmaceutical products,
starting with: tourist buses, truck licenses, code of conduct for traditional foodstuff, eurocodes on building materials, and
all the OECD toolkit II recommendations on beverages and petroleum products;

•

In order to foster competition and increase consumer welfare immediately launch a new competition assessment, in
collaboration and with the technical support of the OECD, on wholesale trade, construction, e-commerce and media. The
assessment will be concluded by Q1 2016.The recommendations will be adopted by Q2 2016.

•

open the restricted professions of engineers, notaries, actuaries, and bailiffs and liberalize the market for tourist rentals ;

•

eliminate non-reciprocal nuisance charges and align the reciprocal nuisance charges to the services provided;

•

reduce red tape, including on horizontal licensing requirements of investments and on low-risk activities as recommended
by the World Bank, and administrative burden of companies based on the OECD recommendations, and (ii) establish a
committee for the inter-ministerial preparation of legislation. Technical assistance of the World Bank will be sought to
implement the easing of licensing requirements.

•

design electronic one-stop shops for businesses through analysing information obligations businesses have to comply
with, structuring them accordingly and helping to design a project on developing the necessary ICT tools and
infrastructure (Q3 2015). Setting up the institutional & co-ordination structure, identification of the business life events to
be included, identification and mapping of information obligations & administrative procedures and training of officials
(Q4 2015). Launch (Q1 2016)

•

adopt the reform of the gas market and its specific roadmap, and implementation should follow suit.

•

take irreversible steps (including announcement of date for submission of binding offers) to privatize the electricity
transmission company, ADMIE, or provide by October 2015 an alternative scheme, with equivalent results in terms of
competition, in line with the best European practices to provide full ownership unbundling from PPC, while ensuring
independence.

On electricity markets, the authorities will reform the capacity payments system and other electricity market rules to avoid that
some plants are forced to operate below their variable cost, and to prevent the netting of the arrears between PPC and market

operator; set PPC tariffs based on costs, including replacement of the 20% discount for HV users with cost based tariffs; and
notify NOME products to the European Commission. The authorities will also continue the implementation of the roadmap to the
EU target model prepare a new framework for the support of renewable energies and for the implementation of energy efficiency
and review energy taxation; the authorities will strengthen the electricity regulator’s financial and operational independence;

10. Privatization
•

The Board of Directors of the Hellenic Republic Asset Development Fund will approve its Asset Development Plan which
will include for privatisation all the assets under HRDAF as of 31/12/2014; and the Cabinet will endorse the plan.

•

To facilitate the completion of the tenders, the authorities will complete all government pending actions including those
needed for the regional airports, TRAINOSE, Egnatia, the ports of Pireaus and Thessaloniki and Hellinikon (precise list in
Technical Memorandum). This list of actions is updated regularly and the Government will ensure that all pending actions
are timely implemented.

•

The government and HRADF will announce binding bid dates for Piraeus and Thessaloniki ports of no later than endOctober 2015, and for TRAINOSE ROSCO, with no material changes in the terms of the tenders.

•

The government will transfer the state's shares in OTE to the HRADF.

•

Take irreversible steps for the sale of the regional airports at the current terms with the winning bidder already selected.