May 27, 2015

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Taxes, No taxes, Other taxes

There was a lot of fuss in the media about an ATM withdrawal tax proposal Yanis Varoufakis said was on the negotiating table only to be contradicted by the finance ministry shortly afterwards, saying that the proposal had been withdrawn, Reuters reports. The reason was not clear immediately. Manos Giakoumis (@ManosGiakoumis) tweeted that the proposal came from the lenders and was not accepted by the Greek finance ministry. Reuters writes that the finance ministry argued that the tax failed to sufficiently discourage use of cash rather than credit for transactions. The proposal of a levy on bank transactions is also off the table. No contradiction here. 

Another tax under discussion is on deposits held abroad. Athens is in talks with Swiss authorities to offer taxpayers with deposits abroad the chance to voluntarily declare them and pay a tax to avoid stiffer sanctions. Currently discussed is a 15% tax rate, compared with a 46% tax rate if caught. Varoufakis said that a rate too low would raise moral questions of legalising tax evasion, while a rate higher than 30% risks a deposit flight to the Cayman islands and other tax havens. 

Greek Analyst (@GreekAnalyst) captured the absurdity of the proposals in a humourous take:

Did you declare everything? Pay 45% tax. Did you tax-evade domestically? 30%. Abroad? Only 15%! Sounds fair

All those tax proposals suggest there is still some way to go for a deal to conclude. A Eurogroup meeting in Brussels scheduled for today has now been postponed, according to ZeroHedge. Brussels Group negotiations will continue once Athens has had time to conduct “preparatory discussions.” They now expect a Euro Working Group teleconference tomorrow and possibly a eurogroup meeting on June 2, according to Manos Giakoumis (@ManosGiakoumis). 

Jean-Claude Juncker could not refrain from telling the press that Varoufakis was “not helping the process.” Juncker told MNI news agency that “Mr Varoufakis is the finance minister of a country that has to confront huge problems and he doesn’t give the feeling that he knows that.” Asked by the MNI reporter whether he trusted Prime Minister Alexis Tsipras, Juncker took 14 seconds to answer “yes” saying that Tsipras was becoming "increasingly responsible,” according to Kathimerni. Juncker said the tax proposals must yield €1.8bn, or 1% of GDP in order to narrow a fiscal gap. He said pension reform was also crucial, pointing to the large proportion of early retirements in Greece in particular, while suggesting that labor reforms could be postponed until the fall.

The Greek finance ministry, meanwhile, found another cash treasure worth about €1m. Alternate Finance Minister Dimitris Mardas ordered Greece’s ministries and other bodies to transfer the reserves from 1,039 accounts in the four big commercial  banks (Piraeus, National, Alpha and Eurobank) to a special account at the Bank of Greece, KT Greece reports (@MacroPolis_gr counts 1193 accounts). According to a finance ministry statement, the order refers to inactive bank accounts (last activity in 2009) with small amounts between €0,00 and €99,99. The total amount is estimated to be less than one million euro. The order says that the transfer has to be concluded by June 5th 2015, just in time for the IMF payment. Mardas also said that 505,000 taxpayers settled tax arrears of €3.5bn until May 22 and that the deadline for payment would be extended by one month to June 26, according to Manos Giakoumis.

The Greek government’s decision to suspend non-wage payments risks another nasty side effect, as Greece could be missing out on €1bn worth of EU subsidies this year from the previous framework programme expiring on December 31. The payment freeze by the state has blocked the proper implementation of projects that will have to finish by the end of the year, writes Kathimerini. And this despite the subsidy absorption rate improving considerably in recent years, reaching a level of 85%. At greater risk are not only the highway and environmental projects but also investment plans that are being implemented by the private sector, says the article.

It is also clear that Syriza MPs will not accept every compromise. A reminder of the parliamentary speaker Zoe Konstantopoulou's continuous challenge to the government was the questioning of the appointed new board for the reopened ERT radio sender for a full 10 hours. She took the unusual step of presiding the committee herself, raising concern within the government that she has done so to raise her own profile with the public, writes Macropolis. It certainly helped to show that they are serious about transparency. Her questioning nearly led to a refusal to approve the board, it was adopted by 7 against 5 with 2 abstentions, including one MP who intended to vote ‘No’ but was replaced at the very last minute. A refusal would have been embarrassing for the government.  

Syriza still has public support, however. A poll for the Syriza-affiliated newspaper Avgi shows that the public is supporting the government with 48% while 54% back their negotiation strategy, according to KT Greece. 58% want the government to not give in to creditors' pressure and of course a majority of those polled oppose additional austerity measures, against 37% who believe the government should compromise. There is still a large majority for keeping the euro (71%) and amongst the measures the most opposed are pension cuts and mass lay-offs (above 80%), while a slight majority are also against the ENFIA property tax and a unified VAT tax rate. Only 10% support the idea of early elections, 56% want the parliament to vote on the deal, while 34% want a referendum.

Our other stories

Today we also have stories on how not to reform the eurozone; how to harmonise the corporate tax system; what might ultimately hold back the eurozone’s incipient recovery; whether central banks need positive capital; what might force early elections in the Netherlands; and what’s happening to Spain’s political parties after the elections.

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