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Taxes are being increased, to avoid curtailing government spending

25 October 2015 / 20:10:44  GRReporter
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The Greek government puts the entire burden of achieving its main fiscal target, a primary surplus of 0.5%, on taxes. Not a word about curbing government spending. At the same time, institutions, organisations, agencies, etc. of the public sector, which are supposed to be liquidated, shutdown or to have exhausted their life cycle, continue to live on, and pretty well, too, while draining state coffers. The vicious circle is closed.

This is how, in a period of severe fiscal austerity, government spending for 2015 will exceed that of 2014. And in 2016, despite the impending cuts in pensions, public sector salaries and social security funds, spending is expected to be reduced by the mere €214 million, as it transpires from the draft budget for next year. For comparison, only VAT revenue in 2016 is expected to be over €2 billion higher.

A statistical flashback shows that for all intents and purposes the attempts to cut budget spending ground to a halt in 2013. In 2009, when Greece's odyssey with the memoranda began, expenditures were in the vicinity of €62.3 billion. By 2013, they were reduced to €44.227 billion. Since 2013, however, virtually nothing has been done. From €44.227 billion in 2013, government spending will reach approximately €42 billion in 2015. Thus, the vicious circle in drafting state budgets becomes evident. We are failing to cut primary budget spending. Instead, we are introducing new taxes to achieve fiscal targets. Yet taxes are not properly enforced and here is how we re-start the debate on new measures.

There are many examples that unmask the failing attempts to cut government spending after 2013, with civil service salaries and pensions being the key item in it. Back in 2010, when the first memorandum was signed, data showed that only in 2009 the cost of salaries and pensions in the public sector amounted to €22.293 billion. In 2013, after pension cuts and the introduction of unified salary rates, these costs were reduced to €17.687 billion. And what has happened since then? Spending has increased.

2014 already saw an increase of €160 million from 2013, and for 2015 the hike should also be considered certain as the deviation from targets (more has been spent than planned) is also reflected in the draft budget for 2016. "The costs for salaries and pensions will exceed the earmarked funds, due to the departure of employees because of retirement (upon which they receive several salaries worth), to upward career development entailing wage hikes, as well as to higher costs for initial instalments into outstanding remuneration of uniformed employees and magistrates."

The half-hearted or downright failing attempts to limit public expenditure is seen in other data, too:

1. Consumer spending in 2013 amounted to €1.93 billion, while in 2015 it will be just over €1.8 billion.

2. The expenditures of local authorities from 2011 onwards have been hovering at about €6 to 6.4 billion, with €300-400 million up or down.

3. In both 2014 and 2015, the costs of social security funds have grown faster than revenues, as a result of which the so-called "white holes" of the past (mainly from 2013) have turned into "black holes" within a space of only two years (the insurance funds deficit is expected to exceed €1 billion in 2015).

Apart from that, the Greek state has even today retained its direct or indirect participation in a number of companies, such as the Hellenic Sugar Industry, the Larko state mining company or defence industry enterprises, most of which have two common features:

First, past attempts to privatise them have ended in failure, mainly because their debts amount to millions, and because their labour force is bloated.

Second, they have perennially been loss-making enterprises, despite the fact that some of them operate in priority sectors, not only for Greece but also for Europe. Larko is a typical example: it is one of the few manufacturers of ferronickel in Europe, but no less operates at a loss.

Indeed, it is not the only one. According to the latest data (2015), a total of 18 state-owned companies and organisations are money wasters expecting €1.8 billion-worth of subsidies.

Tags: taxes government spending public sector loss-making enterprises
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