Political courage required for tax reform

The year 2004 will be the worst year for Greece’s budget deficit since 1998, after which the country braced itself to meet the criteria for eurozone entry. According to a European Commission report last month, the seasonally adjusted deficit will reach 4.1 percent of GDP, against just 1.3 percent in 1999. The difference is colossal and all the more unacceptable because it is the result of a populist and wasteful policy since 2000. This was compounded by bad planning, corruption, and some pharaonic projects and increased security requirements for the Olympic Games. The currently prevailing view in the European Union is that public finances must be set on a different footing, according to three criteria: the level of public debt, securing the financing of pension and healthcare systems, and improving the quality of fiscal management. On these three counts, Greece has a long way to go to prove it can succeed. But it is the third-mentioned in which it can perform more speedily and effectively, while also promoting social fairness. As the head of the previous government’s economic think-tank, Professor Vassilis Rapanos, said recently, «a country’s tax system reflects its level of civilization.» He noted that Greece had a problem «because of the complexity, lack of clarity and resulting uncertainty» of tax provisions. In view of the planned taxation reform, the government would do well to give serious attention to a recent proposal by the Foundation of Economic and Industrial Research on the creation of a «Taxpayers’ Charter.» Also, it could ask Parliament’s Economic Affairs Committee to set up a working group of experts on tax reform. If it pays attention to organizing the debate and attaining a basic consensus on reform, it will have served major policy goals. If, on the contrary, it resorts to a hasty batch of measures under the pressure of fiscal imbalances, it will fail. Effective policies require standing up to the bureaucrats, political courage and power of ideas.