Changes in the insurance sector and increases in value-added tax rates account for the lion’s share of Greece’s fiscal adjustment effort in 2015-18, an assessment released Thursday by the European Commission estimates.
For 2015 alone, according to the evaluation report on the social impact of the bailout program, the fiscal adjustment is estimated at 2.5 billion euros (1.4 percent of gross domestic product), rising to 6.5 billion in 2016, reaching 8 billion in 2017 and 8.2 billion in 2018 (4.3 percent of GDP).
The Commission says that the measures contained in the program, if applied in full and in a timely manner, will help Greece to recover stability and development, while also helping to combat the country’s most pressing social needs and challenges.
The toughest reform is the curtailment of pensions for those who retire before the age of 67 (or 62 with 40 years of pension contributions). The Brussels-based institution maintains this will deter undeclared incomes and staying in the labor market only until 15 years’ worth of contributions have been registered. As it reports, more than a quarter of new retirees in Greece have 15 years’ worth or less of insurance contributions.
The Commission maintains that raising the retirement age to 67 removes the incentive for early retirement without any serious impact on the adequacy of benefits. It expects the reforms to increase job retention, leading to increasing contributions to pension funds and higher pensions.
Regarding the islands’ raised VAT rates, the Commission expects this measure to come into effect on October 1, with two criteria: proximity to Athens and inhabitants’ highest per capita income.
The report states that about 5 percent of the population on Aegean islands has a higher per capita income than the mainland average, making reduced VAT rates unfair.
In terms of next year’s labor market measures, the report says that flexibility in will increase employment and liberalize closed professions. Special mention is made to the necessity of the deployment of welfare resources, while the Commission expects the implementation of the Guaranteed Minimum Income scheme on a national scale by 2017 to cover the needs of 1.2 million people living on the poverty line, costing 0.5 percent of GDP annually.