Emphasis put on growth at TIF

Prime Minister Costas Karamanlis’s keynote economic policy speech at the opening of the Thessaloniki International Fair (TIF) on September 9 is expected to reiterate that his government’s primary economic goals are a reduction in the huge public deficit and the maintenance of the high growth rates of the Greek economy. Government officials take the view that social policy is best served by underpinning growth and its diffusion to the broad social strata. According to sources, the prime minister will stress the government’s orientation towards bolstering entrepreneurship and investment while also cutting red tape and waste in the public sector and not imposing any new taxes. However, the continuing divergence of public finances from budget targets appear to afford little changes in personal income tax in the short term. Karamanlis will likely announce a timetable for the promised lowering of tax rates between 2007 and 2010, and it is not ruled out that the changes will involve a single flat rate at 25 percent. The sources say that the income tax-free ceiling will be raised from 11,000 to 12,000 euros in 2007 and the 40 percent and 30 percent rates will come down by two and one percentage points respectively, with a view to the ultimate single rate of 25 percent by 2010. Also, according to a pilot scheme, salary earners and pensioners will be exempted from the obligation of submitting annual tax statements and their taxes will be assessed automatically on the basis of data by employers and pension funds. With property taxes, the changes will be in the direction of bigger breaks for parental transfers and inheritances, and the exemption of first-time house buyers from value added tax, but will largely depend on the state of public finances. It seems that Karamanlis has largely accepted Economy and Finance Minister Giorgos Alogoskoufis’s recommendation for almost zero raises in salaries and pensions, except for supplements to the lowest and farmers’ pensions, with a counterbalancing emphasis on the government’s reform program. «The public deficit will be brought below 3 percent of gross domestic product in 2006, mainly by keeping a lid on primary expenses,» a senior government official says. «At least 0.6 percent of this reduction will have a structural and permanent character.» Developments on the crucial fiscal front will greatly depend on the tools which Alogoskoufis will use to pep up public revenues. In contrast to revenues, expenses seem to be under control at the primary level (mainly public sector wages and grants). «The budget target for 2005 seems likely to be attained, without putting at stake the quality of social services offered to citizens,» the same official said. Nevertheless, the crucial parameter for the successful execution of the budget is the maintenance of a robust growth rate for the economy. Until the middle of 2005, this rate was 3.5 percent, considerably higher than the forecasts of various organizations. In the first quarter of the year, Greece’s annualized growth rate was the highest in the eurozone (3.5 percent), with Spain in second place (3.3 percent). Other economic indicators are also encouraging, with the volume of retail sales up 5.3 percent on a 12-month basis, and private sector financing 14.2 percent, very near last year’s level and almost double the average eurozone rate.