ocp192_en

European CommissionThe Second Economic Adjustment Programme for Greece. Fourth Review3.1.2. Fiscal outlook in 201422. The authorities reaffirmed their commitment to comply with the 2014 programme fiscal target,which remains within reach according to the current assessment. Recent discussions on the fiscaloutlook were framed in the context of evident better-than-expected fiscal outcome in 2013 and thedegree to which it carries over into 2014. Discussions focused on consolidating the improvements in aviable manner and further advancing the reform agenda towards improved delivery and costeffectivenessof public services. Moreover, significant amount of time has been devoted during thereview to ensure that the implementation of programme commitments with potentially sizablebudgetary impact does not endanger the fiscal targets. This concerns, in particular, the reduction ofsocial security contribution rate and elimination of nuisance taxes.23. Only a limited portion of the sizeable 2013 fiscal over-performance is projected to carry over into2014. The positive carry-over of ordinary state revenues is broadly offset by the reverse effect in 2014of the frontloading of the EU structural funds receipts which took place in 2013. Moreover, the 2013spending under-execution in multiple categories is mostly regarded as one-off with the exemption of thestate expenditure where the government decided to lock in the savings through revised spendingceilings with the adoption of the new Medium–Term Fiscal Strategy (MTFS) in early May 2014.Finally, the outlook for 2014 deteriorated on account of downward revisions to social securitycontributions and other social budget revenues given the lower-than-expected outturns in 2013.24. Some of the shortfall in social budget revenues is offset by an upward revision of the estimatedyield of the new income tax reform and the incorporation of the savings related to the publicinvestment. The higher-than-previously-estimated yield of the income tax reform results partly fromthe tightening of the depreciation allowances, through bringing the overly favourable rules prevailing sofar in Greece closer to the EU standards. In addition, the re-quantification of the income tax baselinecomponents has also played a role. In particular, these relate to the positive effects of the automaticwithholding of income tax for pensioners, new tax regime for professionals and small businessesincome, as well as changes in the tax burden on salary and wage earners. The budget savings on publicinvestment reflect the impact of new EU regulations on the cost of co-financed projects carried by theGreek state.25. To improve the underlying fiscal position and to secure the achievement of the fiscal target, thegovernment adopted a series of mostly administrative measures. It was agreed that the new actionsshould be targeted to address structural issues in specific sectors, in particular weak paymentcompliance of current and overdue social security contribution. In this context, the authorities haveundertaken a series of steps (described in Box 5) to increase compliance in social security contributionsand estimated to bring around EUR 0.5 billion in additional revenue on yearly basis. Additional stepsare also being taken on the rationalisation of public expenditure reducing military procurementprogrammes and tightening spending ceilings for Extra Budgetary Funds (EBFs). The entire spectrumof the proposed measures is estimated to yield about EUR 0.9 billion in 2014 with yields falling to EUR0.8 billion as of 2015 as some elements have a temporary effect.26. The government took a number of policy measures in 2014 to support employment andstrengthen social cohesion. The authorities decided to implement ahead of schedule a cut in socialsecurity rates of IKA (the largest social security fund) by 3.9 percentage points, with effect from 1 July2014 (to achieve a total reduction of 5 p.p since 2012). The rate cut is achieved mostly by reducingemployer-paid non-pension contributions (2.9 percentage points). The full-year cost of reducing therates is estimated at 0.4% of GDP and will be partly financed by the following actions: (i) eliminationof OAED (the unemployment fund) family benefits following the broader rationalisation of familybenefits in 2013; (ii) reduction of OAED training programs; (iii) rationalization of OAEE exemptions;(iv) automatic offsetting of VAT and income tax refunds against SSC debts. To strengthen socialcohesion, the government initiated a programme aimed at provision of one-off income support tosocially vulnerable groups. The envelope of the scheme is estimated at around EUR 500 million.Moreover, according to the government proposal, additional resources of EUR 20 million will bedevoted for programmes targeted at homeless. Finally, the government have also adopted a new scheme24