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The creditors insist on a 23% VAT on private education

24 October 2015 / 22:10:26  GRReporter
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Up until now, the government and its creditors have only agreed on two points: that they beg to differ on bad loans and VAT on private education.

The government is in a bind because creditors are not convinced that it will do as promised, or that the measures it implements will be effective.

During the discussions in Athens, representatives of the institutions have stopped the government's bill introducing two reduced VAT rates on private education (6% for foreign language schools, dancing schools, music schools and vocational schools, and 13% for private schools of primary and secondary education).

Although the Ministry of Finance promised a month ago that this measure would be replaced with something else, the VAT on private education currently in force is 23%. Over the next 24 hours, estimates should be issued on how much families sending their children to private tuition ought to pay.

Reports say the creditors have disagreed with VAT reductions as the European directive on VAT does not provide for reduced rates in education. What it allows governments to do is either remove VAT on private education or apply the common rate.

The government must find equivalent measures to secure several hundred million euros and plug the hole if VAT on private education is entirely slashed.

Apart from this, the government must take urgent measures to make sure the €2 billion tranche arrives at all. And this will only happen if the other 49 measures of the first package are adopted by Tuesday.

On Thursday, there will be a regular meeting of the Euro Working Group. If by Tuesday all measures are adopted, and the institutions' report is ready, the meeting will discuss how Athens lives up to its commitments and whether the 2 billion tranche is to be remitted. If the answer is yes, the remittance will take place during the first week of November. The fact that even Finance Minister Efklidis Tsakalotos said yesterday that he did not know when the tranche will be wired is a tell-tale sign of the reigning insecurity.

A key issue for both economy and society are the amendments to the Katseli law on indebted households. Although they are just a small fraction of the bad loans problem, which is directly connected with the bank recapitalization, no solution was reached before the lenders' envoys left Athens. They were not even affected by French President Hollande's public statement that unless the issue is resolved now, this will take place at a higher political level.

Bad loans depend on the recapitalization of banks and what the stress tests find out about their capital needs. However, recapitalization will affect not only loans but also people's deposits, which might also depend on the size of the banks' capital needs.

What transpired is that neither the measures of the first package agreed so far have been adopted, nor is the list of measures from the second package ready so it could be voted on and implemented by mid-November.

The second package will probably contain the following measures:

-       Financial: the adoption of a medium-term (2016-2019) financial strategy including measures worth €8.1 billion;

-       Banks: a recapitalization bill (which was delayed but is still coming along), changes in the auctioning of the first dwelling of debtors, establishing a general bad debt management framework;

-       Taxation: changes in the taxation of farmers, measures aimed at promoting electronic payments, introduction of a new property register, introduction of measures worth €20 million in order to avoid paying €5 upon each visit to a doctor in clinics. Income taxes (on wages, pensions, rents, etc.) might also be changed.

-       Employment: revision of collective redundancies and collective agreements based on international best practices;

-       Public sector: adoption of new salary rates that will be in force from 1 January 2016;

-       Opening of the professions;

-       Privatisation: denationalising of the independent electricity transmission operator or an alternative plan with equivalent measures, announcing the closing dates for the privatisation of the railways and the ports of Piraeus and Thessaloniki.

The good news is that economic data just out showed a much milder recession than previously projected. This might translate into a stronger revenue collection and therefore less pressure for additional measures.

Tags: creditors measures VAT private education bad loans
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