IMF Issues Article IV Mission Concluding Statement On Greece

by Mike Godfrey, Tax-News.com, Washington

09 June 2009

The IMF has issued an Article IV Mission Concluding Statement after consultations with Greece. The IMF has warned that policy adjustments are necessary to correct imbalances, that delaying adjustment could lead to extended slow growth and that fiscal consolidation cannot be postponed.

The IMF projects the headline fiscal deficit to widen and public debt to increase sharply. If no further measures are taken, the IMF believes that a deficit of at least 6% of GDP in 2009 would rise to over 7% in 2010. The consequent adverse effects on the debt to GDP ratio has been reflected in spiking spreads on government bonds, and high funding costs for the country as a whole. Spreads are now easing, but a return to the low levels prior to the crisis is unlikely and risks of new spikes remain if policies are not strengthened. The deficit-reducing measures of early 2009 include moderating incomes policy, cuts in non-essential expenditure, and higher excises, yielding perhaps more than 1% of GDP in savings — a welcome reduction in the underlying structural deficit; but more is needed, in the opinion of the IMF.

A tax effort focussing on income that escapes taxation to spread the tax burden more fairly is needed in the view of the IMF. The IMF proposed the following measures:

• Broadening tax bases by reducing exemptions and deductions;
• Moving ahead decisively with taxing the self employed and the informal sector by using information cross-checking and presumptive taxation;
• Increasing further selected excise taxes to the euro-area average;
• Suspending the corporate and personal income tax rate cuts of 1% a year through 2014 until the deficit is confirmed to be below 3% of GDP

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