New way to reform social security?

With more than a month to go before the start of the dialogue on social security reform, government officials privately claim to have found a way to finance the heavily indebted system. The unions have let it be known they will accept no solution that does not include financing of the system through the government budget. Last year, the General Confederation of Greek Labor (GSEE) set the minimum budget outlay at 500 billion drachmas (1.47 billion euros). The government has informed GSEE officials close to the ruling Socialist party that it plans to raise VAT rates, from the current 8 and 18 percent, to 9 and 19 percent, respectively. This measure should bring in 675 million euros in additional revenue. The government also plans to raise taxes on car imports and fuel, raising another 500,000 euros. There is a problem with this approach, besides the fact that the available sums do not meet the unions’ minimum requirements. GSEE has adamantly opposed indirect taxation, pointing out that it works against income redistribution and hurts the less well-off. Still, the government is seriously considering the hike in VAT. Last year, the government unveiled proposals for social security reform that included raising the retirement age, cutting pensions and providing leeway for private-sector supplementary pensions. The unions had vehemently opposed the proposals, saying they would not settle for anything that would leave them worse off. Faced with the government’s apparent determination to do nothing rather than risk the ire of the unions and opposition parties, GSEE has changed tack slightly, accepting that some «egregious» examples of early retirement at ages below 55 be abolished, and allowing a greater role for supplementary pension funds. But it has stuck to its demand for higher employer contributions, something the employers reject out of hand. It seems inevitable that any solution to social security’s financial woes will include some form of budget contribution. It is likely, however, that such a solution may prove only temporary, if deeper reforms are not undertaken. The financing of the system is far from assured, and employers who fail to pay social security contributions are partly to blame. One of the biggest delinquent employers is the State itself. Intralot shed 1.06 percent to 18.58 euros on the Athens bourse yesterday. It announced the acquisition after the market closed.(Reuters)

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