July 9, 2013 / 5:51 PM / 6 years ago

Lenders sound alarm over lack of action in Athens - report

BRUSSELS, July 9 (Reuters) - Greece’s inability or unwillingness to collect taxes threatens to create a new financing shortfall, its lenders said in a report seen by Reuters that signals a new low in relations.

After months of relative calm, concerns over the bloc’s first bailout recipient as well as a teetering government in Portugal have reignited the threat that the euro zone crisis may return.

Athens is far from financial independence and even as Greece received a fresh lifeline from the European Union and the International Monetary Fund on Monday, the report underscores the sense of alarm over Greece’s willingness to change.

If Greece’s long-term funding looks no longer secured, there is a risk the IMF may have to pull out of the rescue.

In private, European officials have struck an increasingly damning tone on Athens in recent weeks, with some saying the government was doing just the bare minimum and the country’s economic outlook was dimming.

The 47-page report, co-authored by the European Commission and seen by Reuters on Tuesday, formed the basis of the lenders’ decision to give Greece fresh cash - on the condition it delivers - but it also questions Athens’ “willingness and capacity” to collect taxes.

“The strengthening of the tax administration constitutes a key pillar of the fiscal consolidation strategy,” the report said. “Failure to deliver the targeted improvement in collection performance would imply the need to seek alternative measures to close the emerging fiscal gap.”

The report showed Athens could face a fiscal gap of up to half a percent of gross domestic product (GDP) - 2 billion euros ($2.6 billion) - this year and next if it fails to deliver on the reforms its backers demand in return for fresh bailout cash.

For 2015 it predicts a fiscal gap of more than 1-3/4 percent of GDP and of over 2 percent in 2016.

“The fiscal outlook for 2013-14 remains subject to high uncertainty,” according to the report, marked as a draft and dated July 2013. It noted tax collection is concentrated in the second part of the year.

“After measures had been taken in May to avoid the emergence of a fiscal gap for 2013 and 2014, the mission identified new shortfalls that threatened the achievement of the fiscal targets, going as far as half per cent of GDP in either year,” according to the report. GDP was 194 billion euros in 2012.

The report said, however, authorities had identified measures to address the issue and to reach the targets of a primary balance - before debt servicing costs - in 2013 and a primary surplus of 1.5 percent of GDP next year.

Completing those steps is the condition for the EU and IMF to pay out.

They would deal with overspending by the health care fund EOPYY through rationing healthcare and preventing misuse of publicly funded services, according to the Commission paper.

An income tax reform - such as a solidarity surcharge on income from interest and dividends as well as lower tax deduction allowance for medical costs - would also lead to moderate revenue. Other steps initially planned for 2014, such as a luxury tax and higher court fees, would now start in 2013.

Protests against public sector layoffs have picked up, reflecting stiff opposition to Greek Prime Minister Antonis Samaras’s coalition government and the reforms meant to kickstart the economy.

The troika of international lenders gave Greece an extra three months to put 12,500 public sector workers in a mobility pool - giving them eight months to find work in a different department or be fired - after missing a June deadline.

Greece’s economy could shrink by as much as 5 percent this year, Athens-based IOBE think tank said on Tuesday, revising down its previous projection and offering a more pessimistic forecast than the country’s foreign lenders.

The lenders stuck to forecasts the economy would shrink 4.2 percent this year and 0.6 percent in 2014. It did not detail revenue targets for privatisation.

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