ECONOMY

CEOs’ association argues that economic policy is in the right direction but too timid

The concrete steps the government has taken so far to implement its economic policy, such as the laws on tax reform and investment incentives and the 2005 budget, are moves in the right direction but timid ones, Michalis Pagidas, president of the Association of Chief Executive Officers (ACEO), said yesterday. ACEO would like to see the government implement a bolder, more integrated economic policy over the coming months. Specifically, it would like to see more deregulation of the goods and labor markets, especially in state-controlled enterprises for the latter, and the introduction of market principles in education, health, welfare and transport. At the same time, it wants real incentives to be provided to the disadvantaged to improve their lot. Expressing ACEO’s views, Pagidas said the tax law did well to cut the corporate tax rate, in stages, from the current 35 percent to 25 percent in 2007 and to provide the assurance that the taxation system would remain stable for at least three years. However, even with the introduction of the 25 percent tax rate, remarked Pagidas, Greece’s main competitors are at an advantage, either because their own rates are even lower or because other factors, such as less red tape, provide them with an advantage in attracting investment. Therefore, the tax cuts could have been deeper, come sooner and been targeted at certain sectors. Furthermore, Pagidas argues for more indirect taxes on products with negative externalities (i.e. products whose consumption entails a certain cost to society and needs to be curtailed) so that these taxes reach average European levels, or even higher than that. Measures such as lightening the tax burden on the poorest by increasing the ceiling of tax-exempt income or shifting the burden to middle incomes by not index-linking income tax brackets to inflation are neutral measures, Pagidas says, and do not affect economic activity. He emphasizes that, in the medium term, incentives should be provided to those who wish to work longer hours. The so-called audit of public finances, in which the present government «discovered» higher deficits in previous years, mostly through changing the accounting rules, has given the government less room for maneuver by limiting their tax-cutting options. Concerning the development law – as the law on investment incentives is widely known – its positive points, according to Pagidas, are the abolition of the distinction between old and new enterprises as to the eligibility for incentives as well as the abolition of the requirement that enterprises hire a certain number of people. The latter will help boost capital-intensive investment in high-tech projects. On the other hand, Pagidas remarked that the state still provides few incentives, and little money, to the private sector. As for the budget, the ACEO chief remarked that the goal of reducing the deficit is correct but that it should not be reached by lowering public investment. In fact, the budget barely touches upon the real source of waste of public money. Thus, a radical reform of the state sector is necessary. Finally, ACEO says any new needs within the state sector should be met by shifting public servants to different agencies rather than hiring new ones. It warns against recreating the mentality of the state as the employer of choice for governing party members.