ECONOMY

Electronic payments may hold key to increasing state revenues

Greek political parties have often been good at setting up an apparatus for winning national elections but have been poorly prepared for governing in any effective way once in power. This explains why governments tend to resort to ad hoc tax measures when the budget deficit becomes derailed and find themselves under pressure to cut the deficit by their creditors in the capital markets and European Commission. Still, there are other ways for the government to attain a better fiscal outcome and still be fair. Even if the second half of the year turns out to be better than the first, Greece will be unable to bring its general government budget deficit much below the 5.0 percent of GDP level. This is the familiar result of overshooting spending and undershooting collecting tax revenues during a period of a stagnant or contracting economy. In Greece’s case, the best way to deal with the problem would have been to tackle the source of the chronic fiscal problem, namely rising primary spending. Primary expenditures, which account mainly for salaries and pensions to civil servants and subsidies to social security funds, were up 14 percent year-on-year in the first half. Although the figure is expected to come down by year-end since one-off payments were made in the first six months, it will still be very high. To make their point more emphatic, economists say the sum of the wage bill and subsidies to social security funds went up to 14 billion euros at the end of 2008 from 4 billion in 2002. However, any realist who takes into account the assumed political cost by the party in power and the vested interests in state bureaucracy can expect that spending growth can be restrained to nominal GDP growth rates or a little bit lower at best. It is no secret that Greek governments from both main political parties, namely conservative New Democracy and PASOK, had pledged to the EU at different points in the past to hire a single person in the public sector for every two or three employees who retired but repeatedly failed to do so. So any realist should not expect they will follow through on any new pledge now. Of course, there is admittedly a lot of waste and corruption in procurements for hospitals and so on which could have produced great savings for the budget. Let’s assume, though, that realized savings will not differ much from those produced by past government initiatives. So, if the best contribution from the expenditure side of the budget can come in the form of limiting its increase to nominal GDP growth and their reallocation toward more investment than public consumption, the rest of the adjustment should come from the revenue side of the budget. According to government officials, individuals and legal entities owe the state more than 25 billion euros. However, a good portion of this is deemed uncollectable because it is owed by entities in the public sector and bankrupt entities. This brings the total sum f uncollected debt to some 11 billion euros or more. This is an amount that any efficient tax-collection mechanism would have take in in some time ago if the estimated sum is indeed correct. However, experience shows one should not expect much from an inefficient tax-collection mechanism that is difficult to overhaul and some of its members are corrupt. The best way for any Greek government to proceed and attain the best possible results without requiring personal input from the taxman is to set out a concrete multi-year plan for making electronic payments the country’s form of payment. According to various people, paying for goods with notes and coins could be consigned to history by 2012 as use of credit and debit cards would be cheaper and more convenient than cash. The use of cash has already become limited in other European countries that do not have such a huge tax evasion problem as Greece. In some of these, new «contactless» cards that can be waved in front of a scanner to make small payments are already in use. Of course, there are problems since habits do not change that easily, card-processing fees will have to come down considerably but it is in the best interest of the state to press in that direction. Still, the use of electronic payments by all Greeks within a few years should be the goal of any government and it is strange that Greece does not move faster in this direction since this can collect more tax revenues while also serving the principle of social justice.