Differences Over Greece Between IMF-European Commission Intensify

Thursday, December 22nd, 2016
Last Update: 14:38

The International Monetary Fund responded via their blog to European Commission leaks, which disputed the IMF’s calculations on pensions and taxation in Greece.

In this context, the IMF answered to questions posed by Greece’s European creditors:

1. The question whether it is fair to claim that half of Greek taxpayers are exempt from income tax: “Of course, in large part, precisely because so many taxpayers are exempted from income tax, the overall tax rate in Greece is so high. Speaking in numbers, data from the Greek authorities and Eurostat show that more than half of employees are exempted from paying any personal income tax in Greece compared with the euro area average which is 8% . As noted, the result of this narrow tax base in the personal income tax is that the tax rates in Greece are non-viable overall, including not only income tax, but also insurance contributions and other tax rates (VAT, Corporate Income tax, etc.). ”

2. The reforms on taxation implemented have not broadened the tax base enough: “The argument that the tax-free threshold in Greece is the same as in the rest of the euro zone, in our view, is a totally inappropriate comparison because it ignores the fact that the income level in Greece is relatively low. Greece remains a statistically extreme deflection in Europe even after its recent reform, which has only a marginal difference:

• The reform reduced the employees who are below the untaxed lower limit only by 3 percentage points, from 55% to 52%, compared to the euro area average, with the exception of Greece, which is 8%.

• As a result of the reform, the ratio of the level of the threshold of tax exemption to the average salary decreased by only 5 percentage points from 54% to 49%, compared with the euro area average, with the exception of Greece, which is 24 %.

3. Regarding the claim that pension benefits in Greece are lower than in Germany: “The numbers do not provide an accurate picture, first because they are not based on people with similar characteristics, and secondly, because they do not make adjustments for income differences between the two countries. For similar workers – for example, with 45 years of insurance-contribution pensions are almost identical in nominal terms (1,287 in Germany and 1,152 euros in Greece). But even more important is to take account the relative incomes in the evaluation of pension programs, will first look at the ratio of the average first pension to the average salary at retirement (also known as “gross replacement ratio”). This ratio is 81% in Greece, almost double the levels of what in Germany (43%), which indicates a very generous pension system. And while targeted social payments are actually higher in many other European countries, one of the main points of our blog was that Greece desperately needs to restructure its public finances in order to increase spending on such payments.”

4. In the first nine months of 2016 the collection rates of the four major taxes rose to 81% from 77% in 2015: “This claim is wrong because it is based on a narrow definition and in data only on a few taxes. The percentage of the proceeds under an expanded definition is 37% for the first nine months of this year (the same as the rate of 2015).”

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