Last batch of 5.4-bln€ austerity package tabled in Parliament; spending cut mechanism included

A front-loaded package of increases in indirect taxes as well as a once vilified automatic spending cut mechanism were included in the latest draft bill submitted to Parliament by the Greek government on Wednesday evening, with debate and a vote expected to come before next Tuesday’s crucial Eurogroup meeting in Brussels.

The bill contains, barring any last-minute demands by creditors, the remaining prior actions foreseen in order to achieve a first review of the Greek program (third bailout). A positive outcome would free up as much as 10 billion euros in loans by lenders needed by Athens to finance the Greek state over the coming months. The monetary amount of the measures is roughly one-third of the 5.4-billion-euro austerity package presented by the Greek government to institutional creditors – Commission, ECB, ESM and IMF.

Certain measures, if passed, will debut as soon as June 1, with the first “hit” on consumers’ prockets being an increase in the already stratospheric maximum VAT rate, which rises one percentage point to 24 percent. The government expects to reap an extra 437 million euros from this measure on an annual basis. The only exception to the current “tax raid” is a hotel occupancy fee, which will be tacked on to guests' bills beginning in 2018.

The draft bill initially did not include the contentious automatic spending cut mechanism, dubbed the “cutter” by local media and opposition critics. It reappeared in the draft legislation as an amendment after 1 a.m.

The mechanism fulfills a demand by the IMF of a contingency measure in case fiscal goals through 2018 appear to veer off target. The leftist Greek government desperately tried to avoid this measure, but in the end succumbed after other creditors’ lined up behind the IMF.

The biggest challenge will be meeting a 2018 primary budget surplus of 3.5 percent of GDP.