Costly state services lead to higher debt

Owing to the public sector’s poor efficiency, taxpayers each year are called to pay some -27 billion more, or 29 percent, for services provided by the state. According to a recently released OECD report, Greece could enjoy the same level of public services by spending 71 percent of what it currently allocates in the state budget. This means that, without compromising current service quality, it could spend -65 billion per annum for services instead of the current amount of -92 billion. The OECD report found that although public administration is being reformed and restructured, a much faster pace is needed as Greece’s public administration spending is among the highest of OECD member states, both in terms of GDP rate and as a proportion of overall government spending. Public administration spending in 2004 amounted to 10 percent of the GDP, or almost -18 billion, compared to Ireland’s 3 percent and Germany and Portugal’s near on 6 percent. The country’s overall bureaucratic system absorbs almost 20 percent of entire public spending, at a time when the average for OECD member states stands at 13.5 percent. If more effective fiscal management, in conjunction with certain necessary reforms, were to reduce spending on public administration to the OECD average, an amount of roughly 6.5 billion could be saved and used to fund social handouts and investments. Allocations in the 2007 state budget amount to -5.6 billion for health, -6.8 billion for education and -8.7 billion for the public investment program. The public sector, being wasteful and inefficient, continues to post deficits, swelling the country’s debt. In spite of a reduction as a percentage of GDP, the public debt keeps growing, with first-quarter figures alarming the government’s economic staff. According to data of the General Accounts Office, the general government debt at the end of March stood at 112.75 percent of GDP, almost 1 billion euros above the target.

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