ECONOMY

Alogoskoufis: Fiscal revision lays the basis for a sounder economic policy

Economy and Finance Minister Giorgos Alogoskoufis is optimistic about the Greek economy next year, despite the difficulties portrayed by Eurostat’s unfavorably revised public deficit and debt figures, announced last week. He says that for the government, presenting credible and transparent budgets is a matter of principle, while the fiscal adjustment will be mild and will not generate social upheaval. The government intends to proceed quickly with more privatizations, which will downsize the State’s entrepreneurial activity, bolster competition and attract foreign investment, besides bringing into state coffers about 1.5 million euros. He also dispels fears of an economic slowdown after the Olympics, arguing that the infrastructure created will help sustain the high growth rates. Excerpts of the interview which appeared in the Sunday Kathimerini yesterday follow: You are being accused that the audit of public finances which you initiated for recent years has brought the country to account before the EU and created a multitude of problems, such as the impending downgrade of its credit rating. How do you answer these charges? The problem isn’t the audit, it’s the the state of public finances. It’s a matter of principle to present trustworthy and transparent budgets. Instead, for many years, the problems were concealed instead of being tackled. Secret deficits and debts accumulated, which, even if we wanted to, we could not hide. The government is resolved to deal with them through a mild adjustment, without creating upheaval in the country’s social fabric. We all remember a series of reports over time made public by the European Commission, Eurostat and other international organizations which cast doubt on the quality of our fiscal data. There was data showing very large deficits, the dynamics of debt signaled a fiscal problem, and, on the other hand, the official fiscal data presented to the European Commission and other organizations presented deficits as being much lower. So, there was a huge discrepancy, creating a lot of suspicion from everybody, which undermined the trustworthiness of the country. This was the reason for the revision, to restore the credibility of our fiscal data, and it was done fully in line with the methodology and the rules of ESA 95 and the excessive deficit procedure set by the Treaty of Maastricht. The systematic revision was necessary for the satisfactory management of the available resources of the economy and the more effective implementation of economic policy. There is a great deal of confusion regarding tax policy recently and an impression of improvisation. Is this due to the delay in the government’s unveiling of the relevant draft bill? There is no confusion about tax policy. The prime minister has already announced the basic guidelines of our policy in this domain and the bill will soon be tabled in Parliament. We are sticking to our election promises and will implement the proposed reforms within our four-year term. Company taxes will be gradually reduced from 35 percent to 25 percent for societés anonymes and limited firms, and from 25 percent to 20 percent for the others. The 2005 profits will be taxed at 32 percent in the first category and 24 percent in the second. At the same time, we shall introduce phased tax reductions for individuals, particularly for those in the lower income brackets. The bill has been amply studied and will be ready for tabling at the end of October. The investment incentives bill will be tabled shortly afterward. There is a feeling that you are late in introducing structural changes. You have been in government for nearly seven months and we have not seen any privatizations. We shall proceed to a new generation of privatizations and promote infrastructure projects that are jointly financed with the private sector. We believe that we have already proved to citizens with our stance so far that we are not in a hurry to proceed in this sector just to raise public revenue, as the previous government did for a long time. We have already sold a further tranche of Hellenic Petroleum shares and are preparing a new privatizations plan, according to our commitments and with transparency and respect for the interests of the public and the workers. Our methods will combine privatizations with investment and development. We shall be particularly careful in the timing, procedures and methods so as to maximize the benefits for the economy and avoid undesirable side effects and upheavals. We are ascribing particular significance to highlighting the value of the public companies before we privatize them. We shall use all privatization methods, according to the case. The main goals of our privatization program are reducing the entrepreneurial activity of the State, attracting foreign direct investment, and better utilization of public assets. We expect it will increase public revenue at least by 1.5 billion euros next year. Privatization is not a panacea, of course. What is important is to bolster the credibility of the State in its relations with the citizens and enterprises. What will happen with the slowdown in the growth rate after the Olympics? Are there specific plans to deal with the problem and what are they? The very successful staging of the Athens Olympics is an excellent investment for our country. We have acquired modern sports and other installations and significant know-how. We have shown the world what we can do and have bolstered our national self-confidence. The picture of modern Greece that went around the world in recent weeks was very positive. Everything suggests that we shall have a huge tourist wave to our country next year, which will be a huge boost to the economy. It is up to us to build on the base created by the Games. This is the challenge before us and we shall face it successfully, as we did with the Games themselves. With our policy, we shall tap this opportunity and shall further strengthen the country’s outward-looking attitude to attract investment, increase exports and develop all forms of tourism. The new investment incentives law, the impending taxation reform, the fiscal rehabilitation, the tapping of the country’s comparative advantages and European Union investment subsidies, the creation of a friendlier investment environment, and strengthening the export-orientation of enterprises will all contribute to the maintenance and, ultimately, acceleration of Greece’s economic growth rate. Besides, the European economy is recovering and this will help our outward-looking sectors.