Misplaced criticism

Opposition media are accusing the government of social insensitivity, blaming it for cutting the tax on corporate profits but not on the incomes of the low-paid. However, they should take note that it was this government which raised the tax-free ceiling on incomes, and has promised to reduce income tax by no less than 10 percentage points from 2007. Cutting corporate taxes was supposed to make investment more attractive, thereby creating more jobs. This seems to have been at least partly successful, since unemployment has started falling. In order to assess the charge that this government is following a class-driven policy, one should bear in mind its problems, which were largely inherited. According to official data, public debt has reached 215 billion euros, or 120 percent of gross domestic product (GDP), excluding 14 billion of government loan guarantees in favor of public utilities, such as Hellenic Railways. This means that we are paying about 30 billion euros annually in interest and debt servicing, much more than the total wage and pension bill in the public sector, including, of course, vital sectors such as hospitals. The debt, therefore, hampers broader social policy. The interest expense is, again, higher than the amount intended for the public investment program, or more than what we spend on education and defense together. The responsibilities of prior governments, which supposedly nurtured social sensitivities but accumulated such huge debts, are enormous. According to recent Eurostat data, the total tax burden in Greece rose from 32.6 percent of GDP in 1995 to 36.2 percent in 2003. Taxes on incomes from work ascended from 34.1 percent to 40.5 percent in the same period. Of the total of 51 billion euros which the government spends annually – excluding public investment and debt servicing expenses – almost 49-50 billion are «inelastic,» that is they cannot be easily cut because they are public sector wages, pensions, health care costs, interest payments, or public transport subsidies. Now the government is being forced to take a second look even at this spending. Deputy Finance Minister Petros Doukas’s indirect comment is telling. «It is not the time to discuss how we have come to be in such a situation, nor how the government may be able to offer the same or more services to citizens for less money, nor how much of this money is wasted.» Having to deal with such serious fiscal problems, which have been exacerbated by the doubling of the price of oil within two years, the government has opted for a policy of mild fiscal adjustment – gradual reduction in public deficits without the imposition of new taxes that would undermine growth and incomes. We could say this policy has started paying off, for the following reasons: – The economy is growing at a healthy, 3.6 percent rate, despite the doomsday warnings of opposition critics. – The government deficit is projected to be cut from 6.6 percent of GDP in 2004 to 4.6 percent this year. – The rise in primary spending in the first eight months was kept at around 3.5 percent, lower than inflation. – Unemployment has dropped from 10.4 to 9.4 percent.