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THE LIMITS OF AUSTERITY

“The missed target was mainly the result of the deeper-than-anticipated

recession of the Greek economy...”

“Economic growth has fallen short of forecasts, while the government

has faced problems cracking down on tax evasion...”

“There are fears that more cuts could deepen the Greek recession...”

The Economist, “The limits of austerity”, Apr 26th 2011

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Tax rate on corporate profits : 15%

Taxation on dividends : 15%

Highest income tax rate

Initial stage: October 2009 level (falls from 45% to 40%)

Second stage : in 3 years time it will not exceed 30%

Tax free limit in line with current

Less tax brackets

VAT: 19% (upper category), 9% (middle category)

and 4.5% (low category)

Tourist package : 4.5%

Fuel Tax: In 2 years time we remove the additional special tax that was imposed by Pasok

Reduction on employer social insurance contribution by: 25% Tough sentences for undeclared employment

Gradually phasing out of the so called taxes on behalf of third parties

REDUCTION ON TAX RATES

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Tax evasion increases

Tax evasion increased in 2010

despite the expectations of the government.

”The loss of revenues from the increase of VAT tax evasion was

approximately 1.1 billion euro and the loss of revenues from the

increase of income tax evasion exceeded a billion euro.

o “Annually the direct tax evasion and the loss of income from vat and

taxable income and property exceed 12 billions euro (5 billion from

VAT plus 7 billion euro from income tax and property.”

Alpha Bank, weekly economic bulletin , January 27

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principles results

1st Reduction on tax rates Reduce motivation for tax evaders

2nd Simplified tax-system Reduce tax evasion limits

3rd Implement strict penalties for

those who evade taxes Increase the cost of tax evasion

4th

Contact restriction between

citizens

And tax offices

Reduce tax evasion possibilities

Principles against tax evasion

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Revenues estimate from combating tax evasion

2010 2009 (billion euros)

12 10 Tax evasion

18 21 Paraeconomy

30 31 Total

Overall Impact from reduction of tax evasion / paraeconomy (per year) Annual (billion euros)

Target 4th year 3rd year 2nd year 1st year Target

4.13 0.88 0.97 1.08 1.20 -10% Tax evasion

4.53 1.01 1.09 1.17 1.26 -7% Paraeconomy

8.56 1.89 2.06 2.25 2.46 Total

Overall Impact from reduction of tax evasion /paraeconomy (per year) (billion euros)

Target 4th year 3rd year 2nd year 1st year

2.68 0.57 0.63 0.7 0.78 Tax evasion

2.95 0.66 0.71 0.76 0.82 Paraeconomy

5.63 1.23 1.34 1.46 1.6 Total

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Legalizing buildings, Revenue Estimates

1.000.000 Number of arbitrary buildings

70% Use of measure

700.000

Arbitrary buildings towards legalisation (conservative estimate)

Revenues (billion euros)

Number of arbitrary buildings towards legalisation

Legalisation Housing

Percentage

Fees Scale

(euros)

2.8 280.000 10.000 40% Low

4.9 245.000 20.000 35% Medium

4.4 175.000 25.000 25% High

12.1 700.000 100% Total

Conservative estimate

(billion euros)

Estimated revenues (billion euros)

Recovery Year of recovery / activation

Activation Measures

per year

1.5 1.8 15% 1st year

4.0 5.4 45% 2nd year

3.0 4.8 40% 3rd year

8.5 12.1 100% Total

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Revitalizing the Economy

Residential mortgage interest subsidy by two percentage points

Program for the improvement of buildings energy efficiency

Utilization of NRSF

More resources to the Public Investments Program

Establishment of permanent vacation homes programs

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Offset measures - «breathes»

Other offset measures (indicative): PPP

projects, additional measures for housing

construction, concession agreements,self-

financed projects, “fiber optics at home”,

business parks.

0,2 0,1

1,4

0,0

3,4

Offset 2nd year (in billion euros)

1,2 0,2

1,4

0,8

1,5

Offset 1st year (in billion euros)

Subsidy of housing loansEnergy efficiencyNRSFPIPOther offset

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Cost / Benefit Analysis of “Restart”

Note: Net benefit of economy restart policy for the

first year, beyond results of current policy

(Memorandum)

Cost (bil. euros) Benefit (bil. euros)

From Tax reduction

Companies 0.75 Legalization of arbitrary buildings 1.50 Individuals 0.40 Tax evasion reduction 1.10

VAT 1.90 Revenues from liquidity 1.60

Fuels 1.00 Revenues from internal debt reduction 1.50

Insurance contributions 1.40 Housing loans subsidy 1.20

5.45 Housing Energy efficiency 0.20

NRSF 1.35

From increased spending PIP 0.80

PIP 1.00 Other offsets 1.50

Low pensioners 1.50 10.75

Families with many children 0.15

2.65 Recovery 1.90

Total 8.10 Total 12.65

Net Benefit 4.55

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Revenue Enhancements & Cost Reduction

(in billion euros) Plan ND Plan (per annum)

Government ND 1ο 2ο 3ο 4ο

Salary Cost reduction 2.0 2.0 0.6 0.5 0.5 0.4

Operation Cost Reduction 2.5 2.0 0.6 0.5 0.5 0.4

Reduce Government Agencies 1.1 1.1 0.5 0.3 0.2 0.1

Restructure Gov-owned Companies 2.3 1.5 0.3 0.6 0.4 0.2

Reduce Defence Spending 1.2 0.5 0.1 0.1 0.2 0.1

Hospital Cost reductions 1.2 1.2 0.3 0.3 0.3 0.3

Medical Bill reduction 1.5 1.5 0.4 0.4 0.4 0.3

Pension fund and social cost reduction 2.5 0.5 0.1 0.1 0.1 0.2

Improve tax collection 3.5 4.5 0.5 1.5 1.5 1.0

Reduce tax reduction 2.0 0.3 0.0 0.2 0.1 0.0

Improve pension fund collections 3.5 2.0 0.3 0.5 0.6 0.6

Increase Local Gov Recenues 0.6 0.3 0.0 0.1 0.1 0.1

Other costs 2.0 1.0 0.5 0.3 0.2 0.0

Total 2.9 18.4 4.2 5.4 5.1 3.7

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Comparative Analysis

Program ND (in bil. euros)

Measures (2010 + 2011) 37.0

Cost -8.1

Cuts/ Revenue boost 18.4

Total 47.3

Deficit reduction to 1% of GDP in 3 years

Program PASOK (in bil. euros)

Measures (2010 + 2011) 37.0

New measures 2011 3.0

Measures 2012-2015 23.0

Total 63.0

Deficit reduction to 4,9% of GDP in 3 years

Deficit reduction to 1% of GDP in 5 years

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Institutional Measures

Offset mechanism for all debt of private individuals and corporates from and to the State

Obligation of the state to electronically deliver documents required

Expanding “Fast track” to all businesses

Legal fast track

Resolution of the court cases in one year at the most

Zero basis budget

Abolish extraordinary business contributions

Decisive strike to illegal trade

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Change to the Development Model

Tax system

Emphasis on exports

Shipping/Tourism

Agriculture /livestock-breeding/ Fishing

Manufacturing / standardization

Proclamation of Exclusive Economic Zone (EEZ)

Mineral wealth

Research / Technology / Innovation