ECONOMY

Debt pay plan may hurt talks

A new regulation regarding payment programs for debts to the state and social security funds has added more thorny issues to the already difficult negotiations between the government and its creditors, the European Central Bank, European Commission and the International Monetary Fund.

In an effort to give debtors a breather, the government eventually opted for a major increase in the number of installments and a reduction in the amount due concerning tax and social security contribution arrears (due to the waiving of fines etc). Finance Minister Gikas Hardouvelis told Parliament on Friday that “there will be no income restrictions in order to allow for the greatest possible number of taxpayers to enter the payment programs,” and that “even tax debts run up after October 1 could be incorporated into the payment schemes too.”

However changing the entry terms and conditions for the payment programs has made Athens’s negotiations with the troika even tougher.

The first reason for that is that the government submitted the regulation without having first secured the consent of its creditors. The troika’s technical team reportedly received the details of the regulation after its submission in Parliament. Athens has made unilateral moves of such a nature on other occasions too, but this won’t make talks with the creditors any easier.

The second reason is that although there can be no safe estimate of the payment programs’ fiscal impact, the general consensus is that the end result will probably be negative, not positive. Revenues will likely be lower than was the case with previous programs, even though more debtors are expected to join the new scheme. As a result the troika is likely to increase the fiscal gap for 2015 that it already estimates at 2 billion euros. That could mean additional demands to cover the new hole in the budget created by the debt repayment programs.