IMF mission chief: Measures in wrong direction

IMF mission chief: Measures in wrong direction

The tax measures announced by Prime Minister Alexis Tsipras on Tuesday are in the opposite direction to where they should be headed, International Monetary Fund mission chief for Greece Peter Dolman said on Thursday in Athens, as European officials continued to informally express their concerns over the handouts.

The Tsipras package might not be aligned to Athens’ commitments to creditors, one eurozone official said, while another noted that the government is promoting the sort of fiscal easing the European Union had expressed fears about in its debt sustainability report.

Having just completed the three-day negotiations with the government in Athens, in the context of the joint IMF-eurozone mission for the third post-bailout assessment, Dolman told a conference of the Economic Chamber of Greece, that Athens ought to aim at expanding the tax base so as to generate some fiscal leeway to bolster investments. Instead, he said, the new measures will lead to a shrinking of the tax base by not reducing the tax-free ceiling, by the interventions on the value-added tax and by restoring abolished tax exemptions.

Taxation in Greece is very high, the IMF official conceded, adding that he would be in favor of a reduction to corporate and income tax rates, as well as to social security contributions. He also criticized the scheme for the repayment of tax and social security debts in up to 120 installments, expressing concern over its impact on fiscal figures as well as on the payment culture, as it comes on top of dozens of similar schemes in the last couple of decades.

Zsolt Darvas, the head of Brussels-based Bruegel think-tank, told the same event that there is a medium-term risk of a significant slowdown to Greece’s growth rate, due to the failure to boost investment and to demographic trends, which will generate a negative reaction from the markets. He went on to agree with Dolman that very few Greeks pay high taxes and that the tax base needs expansion.