ANALYSIS

Reforms must proceed in spite of opposition

reforms-must-proceed-in-spite-of-opposition

The growing opposition of farmers and other powerful groups to the proposed reform of the social security system poses the greatest hurdle so far to the government’s desire to conclude the first review of the program as soon as possible.

By standing up to the farmers or not, the government will send a message to the markets, the international creditors and other groups in the country. It will show whether it can shed its own populist past, when it embraced the demands of all groups. In addition to the government, it may be an opportunity for all to have an honest discussion about a system that favors some interest groups against others and has contributed to the country’s bankruptcy.

Prime Minister Alexis Tsipras and other senior government officials, among them Finance Minister Euclid Tsakalotos, have repeatedly made it clear they want to complete the current review as soon as possible. They are right regardless of the political calculations that may be involved. After all, it is known the government wants to complete the first review as soon as possible to trigger some positive actions by the European Central Bank and others to boost the economy so that the ruling SYRIZA party has enough political time to win the next general election.

Perhaps nothing could demonstrate their determination better than standing up to the farmers who have blocked roads and are threatening to cut the country in two in order to express their opposition to proposed reforms in the pension and tax systems. Interestingly enough, these demonstrations usually take place in January-February when there is little or no work in the fields and many farmers spend time in coffee shops around the country. In other words, it does not cost them that much personally, unlike other groups which lose their salaries when they strike.

By just looking at the taxable incomes filed in 2014, one can see that about 432,000 farmers declared the total amount of 1.34 billion euros. Fewer than 2,000 of them declared an annual net income of more than 50,000 euros and about 11,300, or 2.7 percent, said they earned more than 20,000 euros. About 93 percent of all farmers declared an annual income of less than 10,000 euros and about 85 percent stated they made less than 5,000 euros each. It should be noted that EU subsidies for up to 12,000 euros are tax-free and are not included, so the income for those farmers who get the subsidies is actually higher.

In a bid to broaden the tax base and make the system more equitable, the tax reform foresees their marginal income tax rate being raised to 26 percent in the next few years from 13 percent at present. Bear in mind that craftsmen and other professionals are already taxed at 26 percent.

Moreover, farmers pay just 940 euros per annum in social security contributions for healthcare and pensions when others with equal annual income pay several thousand euros more. Their contributions are so low that taxpayers have to subsidize OGA, the farmers’ social security fund, heavily so that it can keep on paying pensions. About 90 percent of pensions paid by OGA are subsidized by the state budget. In other words, almost nine out of 10 euros received by OGA retirees is paid by taxpayers.

It is clearly an unjust system which favors the farmers at the expense of other groups, most prominently salaried workers and pensioners. It is the offspring of a longstanding political deal that reflects the power of farmers at the ballot. It also reflects the prevalence of utopianism in a large segment of Greek society which thinks the old order can be preserved even now that the country cannot stand on its feet for long without any bailout money.

Greece can never hope to exit the bailout program era without embracing some major reforms that will make the country more competitive internationally in the medium to long term. The reform of the social security system is one of them. It is obvious that there will be lots of resistance from powerful interest groups who benefit from the current arrangement.

However, the best way to proceed and overcome these objections is for the government to admit it was wrong in the past when it endorsed all kinds of demands by farmers and others when SYRIZA was in the opposition and have an open discussion about the pros and cons of the proposed reforms. The monologues we have heard so far have not led anywhere.

[Kathimerini English Edition]