TOP 10 AUSTERITY MEASURES IN GREEK BAILOUT PLAN
1) Property taxes and their VAT (Value Added Tax) will increase. Their current VAT is 19% on each item purchased, it will increase to 23%.
2) Luxury items will be taxed more and profitable businesses will also receive an additional tax.
3) Taxes on fuel, cigarettes, and alcohol will increase by 33%
4) Civil servants and other government workers will take 15% pay cuts
5) Defense spending will be cut by 200 million euros and more in following years
6) Education cuts will force mergers and closings of almost 2000 schools.
7) Social security programs will face significant cuts and the retirement age will be raised from 61 to age 65.
8) Greek government businesses will be privatized.
9) Government jobs will be terminated via attrition. Only 1 job out of every 10 retiring positions will be filled.
10) Health care spending will be cut by 310 million euros this year and more in subsequent years.
CUTS ARE GOOD RIGHT?
Well, yes and no. Financial management of programs and social services are necessary, and the Greeks obviously didn't do a good job over the last 30 years of maintaining any sense of responsibility. The issue here is that these measures will be debilitating AND they will not make any dent in the piles of debt that have been amassed. The Greeks are past cutting to be able to repay all of these obligations; the figures are just insurmountable.
Take a close look at these provisions and it is clear that any normal person is going to get crushed as a result. Perhaps you are employed by the government or employed by a firm that provides a service or product to government. If you do keep your job, you will obviously take a substantial pay cut. Next, your fuel costs are going to rise and your property taxes are also going to increase. You health care costs too will be noticeably higher, and everything you buy will cost 4% more due to the move up in the VAT.
EXODUS OF EARNERS AND SMART MONEY
Any able bodied person that has any financial means will obviously be incented to employ any tax avoidance scheme possible. I would assume that high income earners would attempt to move to another country or at least off-shore their earnings and assets to shield them from these provisions. Clearly these efforts will undermine the financial projections of GDP and Greece will miss revenue targets, only to repeat the crisis again and again.
Is there any doubt why people are rioting? Is there any doubt there is a disconnect between the people of Greece and their politicians? No one questions that the Greek citizens did have a part in getting into this mess. However, it is quite possible that corrupt Greek leaders were bribed into taking bad loans that were not in the interest of their people. These politicians used the proceeds to hire unions and fund projects that were a form of political payback rather than society-enhancing endeavors.
The move this morning does nothing but extend the process for Greeks to default on unpayable liabilities. Major life style changes and hardships will be endured by common folk while connected politicians and the wealthy remain relatively comfortable. For more information about this topic, please read - GREEKS NEED A HERO - IS THERE ONE? The posting includes the documentary "Debtocracy" which is a must watch.
USA TAKE NOTICE -
This is the future of the USA if we don't take measures to arrest our spending deficits and our out of control entitlement programs. We continue to look at Greece as some third world country that can't get its act together, but the reality is that the country is simply playing out our future today.
In the midst of seeing all of the results from catastrophic debt it is clear that the USA is rushing headlong into policies and promises that emulate the European model. Unfortunately it is obvious that we'll be implementing many of the same austerity measures to pay back our lenders too.
GOATMUG
Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/
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