Announcement on new economic and fiscal measures

Athens, 3rd March 2010

The Greek Government today announced a package of additional measures designed to safeguard the targets of the Stability and Growth Programme against macroeconomic and financial risks.

The package includes permanent measures on both the revenue and expenditure sides of the budget, which together will contribute 2% of GDP, or 4.8 billion Euro. These measures are in addition to measures in the Stability Programme totalling 4% of GDP and measures recently announced by the Prime Minister totalling 0.5%. They signal the Greek Government¢s determination to ensure a sustainable fiscal path and to restore confidence in the Greek economy.

On the revenue side, the new package includes measures amounting to up to 1% of GDP, or 2.4 billion Euro:

Increases in VAT rates (from 4.5%, 9% and 19% to 5%, 10% and 21% respectively) with a fiscal impact of 0.54% of GDP or 1.3 billion Euro.

Increases in excise taxes (additional to those recently voted in Parliament) with a fiscal impact of 0.46% of GDP or 1.1 billion Euro, through

- 0.08 euro increase in petrol excise tax and 0.03 euro increase in diesel fuel;

- 2 percentage points increase (from 63% to 65%) in cigarette excise tax and 20% increase in alcohol tax;

- Introduction of an excise tax for electricity (2.5 Euro/MWh for industrial consumption and 5 Euro/MWh for household consumption – excluding electricity produced by renewable energy resources) and abolition of the excise tax exemption for diesel used by the Public Power Corporation;

- Increase in the excise tax for luxury goods (cars, yachts, etc).

On the expenditure side, the package includes measures amounting to up to 1% of GDP or 2.4 billion Euro:

Reductions in public sector nominal wages and pensions (additional to the wage cutbacks already announced) with a fiscal impact of 0.7% of GDP or 1.7 billion Euro through

- 60% reduction of the 14th salary;

- 2% reduction in wage supplements (additional to the 10% already announced);

- 7% reduction in the wages and 60% reduction of the 14th salary in public sector companies;

- Reduction in the pensions of the Public Power Corporation and OTE (telecoms) pension funds leading to a reduction in the relevant budget allocations;

- Freeze on all public and private sector pensions, cancelling out the announced increases incorporated in the budget and leading to savings in budgetary allocations.

Reductions in current and capital expenditures in the public sector, with a fiscal impact of 0.3% or 0.7 billion Euro through

- Reduction in the Public Investment Programme (500 million Euro);

- Reduction in the education expenditure (100 million Euro from the Public Investment Programme and 100 million Euro from the cancellation of the provisions for new education programmes).

The whole package is accompanied by measures that highlight the Government¢s determination to restore and safeguard social justice as well as ensure a fairer distribution of income. The bill has already been tabled to the Greek Parliament in accordance with the emergency procedure foreseen in the Greek Constitution and will be followed by a number of structural interventions, such as the adoption of a new bill on the reform of the tax system, the implementation of tax collection mechanisms and the fight against tax evasion.