Greek austerity draft proposes wage cuts, buys time for budget targets

Reuters, Wednesday 24 Oct 2012

Potential deal between Athens and its international lenders would mean further lay-offs and public sector cuts but give two years to meet targets, documents show

A draft deal between Greece and its international lenders outlines plans to further cut wages and pensions but, if implemented, would also give Athens more time to meet its budget targets.

Talks on the deal, however, have been blocked by junior coalition partners in Prime Minister Antonis Samaras's government who object to labour reforms that would cut wages, reduce severance payments and axe automatic wage hikes.
The agreement, which remains subject to negotiation and further changes, also includes the following:
Two-year extension to reach budget targets
Greece will get two more years, until 2016, to generate a primary budget surplus - which excludes debt servicing - of 4.5 per cent of GDP.
"This will limit the negative growth impact (from austerity measures) in 2013-14, when the economy needs to find a firmer footing, while still preserving a good adjustment pace," the document said.
Greece will take fiscal measures worth 13.5 billion euros ($17.5 billion) in 2013-2014, including 6.3 billion euros in public sector wage and pension cuts. Cuts worth about 9.2 billion euros would be enforced in 2013.
Public sector lay-offs
At least 2,000 civil servants would be put on one-year notice of dismissal with reduced wages by the end of 2012. At least a further 6,250 would enter the same programme every three months during 2013, starting from end-February.
Recapitalisation of Greek banks to be completed by end-April 2013.
Labour market
Severance payments are to be reduced and capped. Other allowances, such as automatic wage increases that kick in with seniority, are to be abolished. The labour minister said late on Tuesday, however, that the lenders had backed down on insisting that the automatic wage hikes should be scrapped.
Selected tax credits and allowances are to be abolished. Taxation of the self-employed and farmers will be harmonised with the regime for corporate taxes. A flat capital gains tax rate will be introduced to replace the banding system in force at present.
The mandatory retirement age will increase by two years to 67. Pension incomes above 1,000 euros a month will be cut.
Other reforms
Some labour, transport and sanitary regulations will be repealed to lower costs for retail businesses.
New laws will make it easier for retailers to import fuel with a view to reducing fuel prices.
Further liberalisation planned of regulated professions such as dock workers, accountants, lawyers and tourist guides.
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