ATHENS – With Greece stagnant under the former ruling anti-business Radical Left SYRIZA, new Prime Minister and New Democracy chief Kyriakos Mitsotakis is pushing a budget in favor of attracting investors to grow the country faster out of a 9 1/2-year-long economic crisis.
The first budget for the Conservatives after ousting then-Premier Alexis Tsipras and the Leftists in July 7 snap elections pushes more tax cuts, reversing the former government’s tax tsunami that buried workers and put the corporate rate at 29 percent, scaring off foreign businesses.
New Democracy wants to go encourage private spending and foreign investment, with Mitsotakis already moving to get started by year’s end the long-stalled 8-billion-euro ($8.78 billion) development of the abandoned Hellenikon International Airport and plans by the Chinese company COSCO which operates the port of Piraeus to do an 612-million-euro ($671.56 million) overhaul and upgrade facilities to attract larger cruise liners with tourists.
Deputy Finance Minister Theodoros Skylakakis described it as a “radical turn to growth, employment and income increases,” Politico reported, more than a year after three international bailouts of 326 billion euros ($357.73 billion) ended.
The economy began a crawl toward recovery in 2017 although the bailouts haven’t slowed the debt growth and the country still hasn’t been able to make a full market return and Mitsotakis has backed off his hope to get the creditors – the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) to cut the requirement for a primary surplus equal to 3.5 percent of the Gross Domestic Product (GPD) he said was slowing growth.
That doesn’t include interest on the debt, the cost of running cities and towns, state enterprises, social security and some military expenditures and means the target must be hit until 2022 before falling to 23 percent until 2060.
But the growth hopes could be slowed by Greek banks still buried under an avalanche of bad loans – including those owed by New Democracy, a previous government giving bank loan officers immunity for them.
Yannis Mouzakis, co-founder of Greek analysis website MacroPolis, saw the new budget moves as “lowering corporate taxation, dividend taxes and the entry tax rate for personal incomes,” wrote reporter Nektaria Stamouli.
He said that the upwardly revised growth estimate of 2.8 percent is well above forecasts from organizations that still monitor Greece’s performance, “including the European Commission, which will need to sign off the budget parameters,” and forecast growth at 2.2 percent in 2020.
The government said it will stick to the country’s fiscal promises for 2019 and 2020, but it wants to renegotiate with creditors the primary surplus targets from 2021 and after that but even the lower numbers could present a problem with the economy being monitored for decades by the Troika to make sure budget targets are hit, otherwise automatic spending cuts are triggered.
HIT THE MARK
Greece’s Fiscal Council, which monitors the process, said the 2020 growth target is “particularly demanding,” but Mitsotakis – whose government cut the SYRIZA corporate rate of 29 percent to 24 percent, and said it would fall to 20 percent next year – is counting on foreign companies to invest and pour in money.
Greece’s creditors have already identified a fiscal gap of around 0.5 percent of GDP in the government’s 2020 budget plans with the government mulling plans to fill that in and get the consent of the Troika. “A lot of these relate to fighting tax evasion. In the past, the country’s creditors have met such proposals with skepticism,” said Mouzakis.
“There is a sense of optimism around Greece” which allows the government to push its agenda “aggressively,” Mitsotakis said earlier in an interview with the financial news agency Bloomberg. “ We have a clear plan. We want to reduce taxes, make it easier for international and domestic companies to invest, we want to solve our banking problem.”
He said the European Union “needs to rethink some of the very tight rules” in its fiscal policy, adding that he will try restore the country’s credibility and allow it to seek a lowering of its high primary surplus target – but not yet.
“We’ve said from the start that these surpluses are remnants of the past when there was little confidence in Greece. We are now moving very quickly to restore that confidence …in the economy and the government, and discuss about reducing these surpluses in 2021, not necessarily from next year,” he added.
“The fundamental logic of what we are proposing (reforms) was always what we were striving to achieve,” he said, adding that once Greece delivers on its commitments, it will “only be reasonable” to request a more sensible target but he didn’t say when that would happen.
In late September, the Washington D.C.-based International Monetary Fund that took part in two first rescue packages of 240 billion euros ($263.36 billion) but not a third for 86 billion euros ($94.37 billion) given the SYRIZA government, backed Greece’s call for looser fiscal targets to accelerate growth, but said it would have to be accompanied by lower pension spending and a broader tax base that New Democracy, fearing voter loss, doesn’t want to do.
The IMF forecast Greece’s growth rate for both 2019 and 2020 at around 2 percent and added that it “will take another decade-and-a-half for real per capita incomes to reach pre-crisis levels,” and restore the shattered quality of living that saw many pushed into poverty.
The country’s highest administrative court, the Council of State, could upset the apple cart though, ruling unconstitutional some provisions of social security legislation introduced in 2016 which means the government will have to lower social security contributions for the self-employed and for farmers, which were almost double those paid by other employers.
When New Democracy was in opposition it criticized these measure, but will now have to find ways to adopt them and effectively renege, as Tsipras did on virtually every promise he made to workers, pensioners and the poor.
Cutting taxes won’t affect Greece’s ability to meet fiscal targets in the 2020 budget required by the Troika, the government said.
(Material from the Associated Press was used in this report)