ECONOMY

ND’s economic plans

Giorgos Alogoskoufis, economic expert for opposition party New Democracy, is proposing a three-year fiscal policy plan that would, he claims, produce an actual surplus. In an interview with Kathimerini, he sets out New Democracy’s main economic priorities and says these constitute a secure course toward improving Greeks’ financial position. The central theme of Alogoskoufis’s proposals is restructuring the public administration to make it a tool for growth. He says the principal priorities should include speeding up structural reforms, attracting foreign direct investments that can help reduce unemployment, cutting down on public expenditure, restructuring the taxation system, and distributing fairly national resources. Alogoskoufis also cites the necessity of drawing up a list of the country’s finances, which the present government is systematically altering via creative accounting. On the subject of inflation, he blames governmental policy for its present state. He says the proposed changes to the taxation system are fragmentary and do not produce any concrete economic outcome. He suggests that an effective investment policy would be to include the private sector in managing co-financed projects. Inflation is the latest hot topic. What do you think could be done about it? The government is trying desperately to create the impression that the wave of rising prices is due to the euro and profit-gouging by companies. However, its very policies have resulted in inflation nearly twice the average eurozone figure, at the same time undermining employment prospects and Greece’s international competitiveness. If these underlying reasons are not dealt with, it will be very difficult to see inflation declining over the long term. The government should suspend increases by public utilities as well as cancel plans to raise road taxes. It should also stop using the excuse of settling back taxes, which burdens small and medium-sized enterprises and freelance workers. In addition, it should proceed to actual privatization and open up markets. Do you believe Finance Minister Nikos Christodoulakis’s argument that a large growth rate will shield the economy? The growth rate should not be considered satisfactory if our goal is real convergence. If one looks at Greece’s financial data, one can see that the improvement in the last eight years is actually insignificant despite the favorable international conjuncture, community funds and the prospects for the 2004 Olympic Games. The average gross domestic product growth rate in constant prices was 3.1 percent in the period 1994-2001 compared with 2.5 percent for the European Union. At this pace, real convergence will come about in 80 years. We can’t be satisfied with this development. Ireland, with an average growth rate of 8.9 percent in the same period, managed to increase its per capita income to 116 percent of the EU average in 2001 from 83.5 percent in 1993. If we want to achieve real convergence in a decade, GDP growth should exceed the EU average by 4 percentage points; in other words, national output should increase by an average of 6.5 percent in the next decade. To achieve this target, Greece principally needs structural reforms, the right environment and the right initiatives to attract foreign direct investments. The tax system should be simplified, the tax rates reduced and state subsidies and public investments operating in a way which would favor investments in natural and human resources. Effectively utilizing community funds is also important, as the program determines Greece’s course up to 2006. If New Democracy were in government, how would you deal with the public administration? Our central policy focuses on re-establishing the civil service, reducing the disincentives, and combating corruption and the incomprehensible. The service needs meritocracy at all levels and independence from the government as well as a new wage scale. The need is for simplified procedures, the use of new technology that will reduce the need to deal with the public, and an end to partisanship and discrimination against non-party supporters. One important element is constant training of civil servants. All these changes should proceed in a scrupulous way, with incentives provided for improved performance – without, of course, undermining the country’s finances. How do you characterize the recent tax changes? I consider them tax incentives with an electoral flavor in view of municipal and prefectural elections in October. As early as April, the government had sought to hide behind the proposals suggested by the Georgakopoulos committee, with the sole objective of evaluating the reactions. The final proposals are, of course, very limited compared with the original plans and cannot be characterized in any way as tax reforms. The tax system continues to be fragmentary and inequitable. The announced measures only benefit large families, there’s nothing to reinforce small and medium-sized enterprises or to attract foreign investors. There are no plans to reduce the corporate tax rate. These piecemeal proposals, together with a lack of ideas to cut public spending, will only worsen the country’s finances. At the recent Thessaloniki International Fair, New Democracy party leader Costas Karamanlis announced plans to record Greece’s economic data together with the European Commission. What does this mean? In recent years the government has extensively used creative accounting, aiming to cover up the budget deficit and whitewash public finances. Fiscal policy should not be based on this. Together with the EU, we plan to record public debt, public spending, and the budget deficit, and thereby come up with a revised stability and growth pact with new targets. There should be a fresh start based on transparency and honesty.