Greece’s parliament approved a new legislative reform that is going to change the lives of Greek citizens in a drastic way. The law barely passed as 153 out of 300 legislators voted in favor, and there are a lot of good reasons for it. The changes are separated into 10 categories, and they are going to affect everything: from the value-added tax rate (VAT) to the pension system.

The Greek parliament is formed by 300 legislators, and this Sunday, 153 of them decided to approve a reform in order to earn the trust of the country’s 2 prospective loaners; the International Monetary Fund (IMF) and the European Central Bank (ECB). In addition, the reform defenders said the changes could loosen up the terms of the current debts which would give Greece space to maneuver, and the possibility of avoiding default.

The national legislature, in Athens. Image courtesy of Wikimedia.

According to economists that have been following the process, the IMF wants to be part of the bailout team that helps Greece, which is good news for the country since the ECB is led by German advisors, and even though the European block wants to wrap up the situation, German officials say that the IMF has to be involved.

Right now, Germany has the strongest economy in the European Block, but there is a lot to consider. Greece needs €86 billion to pay the immediate debt, and start raising its GDP. If the country does not pay at least €3.5 billion by July, an improvement in its economy is impossible or so the IMF spokesperson said. That kind of money cannot be lent by only one contributor, and the involved parties have to come to common ground to evenly split their participation. For this to happen, the Greek government has to prove it can pay.

The people paying the bills

A country, in some aspects, is similar to a company. When it has financial problems, it can borrow some money, and then, it can pay it with the results of its production. In a company, this would probably mean, firing personnel, cutting down expenses and longer work shifts, but in a country, the situation is very different.

Yes, every country has its own production, and some of them make a lot of money through import and export. However, its biggest income is, and will be taxation. This is one of the things that makes politicians so unpopular, the government financial mistakes are paid by the population, and Greece is not an exception to this.

There is a tax for almost everything, and the new reform brings higher rates for every sector. Through taxation, the parliament seeks to increase Greece’s GDP by 1 every single year starting in 2016. The new VAT rates will be standardized at 23% which includes restaurants and farms. There are going to be exceptions, for example, basic food, energy, hotels and water’s rates will be at 13%.

Additionally, for books, pharmaceuticals, and theater, the value-added taxation fee will be 6%. In addition to this, the discount made on the most popular touristic island will be lifted, so tourists will have to pay a little more while visiting. Officials said these taxation reforms will be evaluated again by the end of 2016.

Tax evasion is very common in every country, and after the reform, it is expected to become very popular in the Greek country. Accordingly, the government increased the penalties for tax offenders, and they also increased the corporate tax rate to 26% – 28%. The luxury tax is going to be increased from 10% to 13%, and television advertisement will start paying too.

Entertainment companies will have to pay up to 30% of their gross gaming revenues, and network companies using 4G and 5G will also have to pay more. This all means that Greek people’s acquisitive power will be very affected because everything is going to be more expensive. The only limitation citizens are rooting for is the military expenditure reduction. Military spending is going to be limited, and the existing structure is going to be reduced.

The parliament said the pension program is unsustainable, and it’s going to change. People will have to work much more before they can retire and once they do, the benefits will be diminished. Arduous professions and mothers that have children with disabilities will be exonerated from these changes.

Tax enforcement

All this money could actually help the country to get out of the financial jam, but the changes mean nothing if there is a deficiency in the collection. The new reform brings a lot of changes not only to taxing rates but also, to the way taxation is being enforced.

There are more severe punishments for evading, and the system also wants to detect and severely punish corrupt officials. For this, the country is going to emulate methods already used by some countries in the European block.

Accordingly, there is going to be a new autonomous revenue agency. There are no specific details on how it’s going to be formed, but if legislators will mimic international standards, the new agency could be something similar to the IRS in the United States.

These measures are necessary when a country is barely escaping default, but what most people consider outrageous is the privatization established in the new law. According to the proposal, touristic ports all over the country will be privatized. The also goes for Airports and TRAINOSE, the government is already concluding pending actions in order to facilitate this process.

To evade default, a country has to sacrifice a lot, and in the case of Greece, this reform looks for the light at the end of the tunnel after 7 years of struggling with debt related problems.

Source: BBC