Economic growth or higher taxes?

The Cabinet is today expected to announce a string of cash-raising tax measures, highlighting a problem that has been dogging the national economy for decades: Greece’s failure to attract investment, which is drawing the government ineluctably into raising taxes to make up the shortfall. Growth has demonstrably failed to pick up despite the fact that overall conditions are favorable – at least in theory. Last summer’s Olympic Games helped improve Greece’s infrastructure, capital is available and many companies are willing to invest in the local economy. The lack of a post-Olympic takeoff demonstrates that the sclerotic state apparatus is holding back any economic momentum. The different ministries, Parliament, various government bodies, regional officials and mayors together raise a near-impenetrable barrier that creates endless delays and complications, which put off even the keenest would-be investors. Similarly, the need for endless permits and rulings send any investment plan into a bureaucratic holding pattern, causing huge delays and uncertainty. Regrettably, the counter-incentives are so strong that the New Democracy government signally failed to solve the problem in its first year in office. The conservatives were unable to inject the economy with new and favorable momentum for growth – and we are not talking here about the daring announcements and unquestionable intentions of the ruling party, but of their actual implementation. Moreover, the precious heritage of the Athens Olympics, venues and projects, which cost the Greek taxpayers billions of euros, remains unexploited. Uncertain as the environment may be for would-be investors, the consequences facing the Greek public are well known. In light of the tight two-year deadline that the European Union gave Greece to bring its deficit in line with eurozone rules, the growth-or-austerity dilemma is hardly a theoretical one. The importance of the dilemma is underscored by today’s decisions. The government should not slide into politically counter-productive cash-raising measures by imposing higher taxes, in what would be sacrificing growth at the altar of red tape.

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