Reuters — Legislation submitted to the Greek parliament late on Wednesday increases the upper band of VAT to 24 percent from 23 percent, adds tax on fuel and tobacco, and defines the process by which banks can sell non-performing loans.
Parliament will also vote on a automatic contingency mechanism to impose additional spending cuts that will be activated only if and when Athens, misses its latest fiscal targets. International lenders want a mechanism that will compel Greece to cut overheads to keep Greece within a 3.5 percent primary surplus target by 2018.
How does the automatic mechanism work:
A deviation of 0.26% – 0.75% from the set surplus target will bring further cuts worth €900 million
A deviation of 0.76% – 1.25%from the set surplus target will bring further cuts worth €1.8 billion
A deviation of 1.26% – 1.75% from the set surplus target will bring further cuts worth €2.7 billion
A deviation of 1.76% – 2.25% from the set surplus target will bring further cuts worth €3.6 billion
Passing the latest reforms before a Eurogroup on May 22 is one demand of the lenders to ensure the review is wrapped up. It would unlock the next tranche of funds that Athens needs to pay back International Monetary Fund loans, state arrears and ECB bonds maturing in July.
Athens hopes that reprofiling its mountain of debt will help it regain market access and convince its public that the six years of austerity they have endured are beginning to pay off.
The tax increases are designed to generate about 1.8 billion euros or 1 percent of national output.
These measures are in addition to contribution increases and pension cuts and tax increases that were approved by parliament on May 8, which were the equivalent of about two percent of gross domestic product.
