more great ideas from the Troika

A look into Greek politics today…

Today I’m quoting parts from another article from this excellent news blog, which posts in Greek. I’m translating excerpts of this article into English here.

It deals with the most recent negotiations between the Greek coalition government and the Troika over the new €130 billion loan, specifically as regards implementing a new tax system.

According to information, at the negotiations between the Vice President / Minister of Finance Evangelos Venizelos and the leaders of the Troika, he was asked to set in motion immediately procedures to fire 10,000 workers from the wider public sector by the end of this March … from the army, hospitals, public banks, and about 50 quasi-governmental organizations, which must be shut down completely.

It probably doesn’t come as much of a surprise to anyone that most of these organizations – especially hospitals – are already stretched very thin. Reducing their personnel even further won’t save money – it will only make these various organizations run even less efficiently – ultimately costing more money to the Greek taxpayer.

As far as a new taxation system is concerned, the Troika has asked the Finance Ministry to adopt the American tax system. Indicative of the climate in these negotiations is the fact that the Troika rejected out of hand the Finance Ministry’s thought of perhaps reducing VAT (sales tax) by 3-4 percentage points –

This was an idea that had been getting some play in the media over the last few days. In Greece, there are several sales tax rates. The vast majority of goods and services have an additional sales tax of 23% added on top. Grocery items that are not prepared (like dried beans, bottled water, dry pasta, uncooked potatoes) have a 13% sales tax. Hotel stays and medicines have a 6.5% sales tax. (There are a few other things in this reduced category as well, but it’s changed a number of times and I’m not too up on it – I believe that books and newspapers are in here also.)

Up until September 1, 2011, all food – including restaurant and prepared grocery – was taxed at the lower 13% rate. The increase this past September has been widely reported to be responsible for thousands of cafes and restaurants going out of business, and of course all the job loss that goes with that.

Up until January 1, 2011, the sales tax breakdown was 21% for goods, 11% for food, and 5% for medicine. That in turn was an increase from the 2010 and previous rate, of 19% on goods, 9% on food, and I believe 4.5% on medicine (but I’m not sure about that one).

The media has reported regularly that this steady increase in sales tax – which hits the consumer many times over, because it must be paid at all stages of production, packaging, shipping, and selling – is responsible for the flight of a vast sector of consumer spending in Greece over the past two years, and that that is responsible for a massive reduction in total sales tax revenue by the government.

-with the explanation that [by reducing the sales tax by 3-4 percentage points], there will be a drastic reduction in revenue, which could reach 2 to 2.5 billion euros per year. [The Troika] further requested that the low rate of 6.5% be eliminated, as well as all the exceptions that are in place in various locations around the country.

That last part affects where we lived in the past. When we lived on the island, we paid lower sales tax rates. The small islands have extraordinarily high prices, because the shops are very small, there are no chain supermarkets, and they have to import small amounts via ship.

We paid a few percentage points lower than the mainland – not enough to reduce the prices to mainland levels, by any means – but every little bit helps, I suppose. The island rates are in place for all the islands except the very large ones. Certainly on medium islands like Syros and Paros, it’s not really necessary to have lower sales tax. Those islands have large supermarkets and import reasonably large amounts of goods. But on the islands with only one or two mini markets on the whole island, with only a few hundred occupants, it can be very expensive to buy food. We usually paid €1.30 for a liter of milk. At the same time, on the mainland, milk was available for €0.83 per liter – including the higher sales tax. All purpose flour was €1.20 per kilo for the cheapest bulk flour, when on the mainland you could find it for €0.47, including the higher tax.

The new demands include:

-A new system of pension revenue collection and a reduction in pensions aside from the basic pension.

Pensions are already quite low in Greece. With the introduction of a new high property tax, many retired people aren’t able to meet basic obligations, and could find themselves in prison for debt to the public sector, or homeless.

-The opening of all professions

As it is now, many professions in Greece require their practictioners to be specially licensed in those professions in order to practice them. “Opening” these professions removes this barrier. These controls are largely responsible for the face of the Greek economy today: pharmacies are small stand-alone pharmacies of the kind that disappeared from American neighborhoods decades ago; tiny mini-markets called periptera sell cigarettes, newspapers, phone cards, and other convenience-store items. If these items are allowed to be sold in supermarkets, potentially tens of thousands of small and very small businesses will close.

While having these items available at supermarkets would make shopping slightly more convenient, it will also mean waves of strikes – threats to “closed professions” have caused many and massive strikes since 2010.  Having pharmacies closed for weeks causes a lot of problems, but the worst was in the summer of 2010, when the gasoline delivery system went on strike:  truckers who deliver gasoline to gas stations stopped running.  Quickly, police cars had no gas; ambulances had no gas; public buses had no gas, and so on.  This causes a ripple affect in society.  When doctors can’t get to the hospital, teachers can’t get to school, society starts to suffer in many unpredictable ways.

It may be a necessary transition to go from a protectivist local economy to an open economy run by large multinational corporations, which is what Germany and France would prefer us to have, but it will be very painful both for the owners and employees of medium, small, and very small businesses, and for everyone living inside Greece.

-Stricter controls on the public sector hiring policy of “1 hire for every 5 fired/retired” and a program of personnel reduction, to achieve the goal of 150,000 fewer workers by 2015.

Luckily for us, S has already been hired, so doesn’t come under the “1 hire for every 5 fires” rule. However, we certainly don’t want him to be one of the 150,000 public sector workers forced out in the next three years.

In the school where S works, which has 400 students, there are supposed to be two school secretaries.  However, school secretaries are no longer considered necessary, so S, as the newest teacher in the school, got stuck with most of the secretarial duties that used to be spread between two full-time trained secretaries.  On top of teaching every last one of the 400 students in the school, and the extracurricular activities, and all the regular extra duties that all the teachers have, he also has hours and hours of bureaucratic and secretarial labor for which he receives no extra money, and in fact his salary has been reduced by 56% in only five months.

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