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Greek reform plan includes tax hikes and spending cuts

John Thys, AFP | Greek Prime Minister Alexis Tsipras in Brussels on July 7

Greece submitted a new plan for economic reform that appeared to give into the demands of its eurozone creditors on Thursday, in a last-ditch attempt to win new funds to avert bankruptcy and keep the country in the euro.

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The 13-page plan is part of a request by Greece for a new three-year, €53.5-billion bailout package to help cover its debts. It will be debated in the country’s parliament on Friday before being put to a vote.

Eurozone finance ministers and European leaders will then examine the proposals during meetings over the weekend to see if a deal can be worked out.

Here’s a look at some of the main points:

Pension reform

The Greek government bowed to creditor demands to overhaul the country’s pension system. It hopes that the proposed reforms will bring permanent savings of ¼-½ percent of gross domestic product in 2015 and 1 percent of GDP in 2016. Under the plan, the retirement age will be increased to 67 by 2022 for the majority of the population, while top-up payment for poorer pensioners will be slashed.

Budget targets

Greece pledged to stick to primary surplus targets – meaning that it earns more in taxes than it spends – of 1 percent this year, 2 percent in 2016, 3 and 3.5 percent in 2017 and 2018 respectively.

Tax reform

The plan includes a slew of new tax hikes due to come into effect in October, including a 23 percent value added tax (VAT) on restaurants and catering. The government also gave into creditor demands to phase out tax breaks for most of the country’s islands – cash cows for the tourism industry.

Meanwhile, corporate tax will increase from 26 to 28 percent and farmers will lose preferential tax treatment and fuel subsidies. The country's huge shipping industry will also see a tonnage tax hike. A luxury tax will be extended to cover recreational vessels over five metres (16.4 feet) and the rate will jump from 10 to 13 percent.

The government will also set up an autonomous tax revenue agency and enact reforms to streamline tax collection, as well as crackdown on fraud.

Spending cuts

In order to increase savings, military spending will be slashed by €100 million this year, and double that in 2016.

The proposals also include re-examining public sector wages to make sure they’re on a downward trajectory by 2019 and that they fit "the skill, performance and responsibility" of staff. Perks such as paid leave and travel allowances will be streamlined to conform with European Union norms and measures will be taken to make it easier to reassign public sector workers to different posts if needed.

A strategic plan will be drawn up by the end of this month to crackdown on corruption, while new legislation will make political party finances more transparent and protect financial crime investigations from political interference.

Financial sector

Insolvency laws will be amended with the goal of getting debtors to pay up loans, while consultants will help on how to deal with bad loans. Steps will also be taken to get foreign investors to pour their money into Greek banks.

Product market

Restricted professions such as engineers, notaries and court bailiffs will be opened up under the plan, while new laws will be drafted to make it easier to get a business license. The gas market will also be reformed.

Privatisations

The government will look at selling off state assets and will get the ball rolling on privatising the electricity grid company, regional airports and ports including Pireaus and Thessaloniki.

(FRANCE 24 with AP, REUTERS)

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