Fiscal Theater

Tax Plan Heralds New Greek Tragedy

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Still side-by-side, for now.
  • Why it matters

    Why it matters

    Greece has made economic progress since its debt crisis peaked in 2012. But the government appears to be re-establishing some of the tax policies that led to its depression, threatening future stability.

  • Facts

    Facts

    • Greece’s GDP is about €188 billion, its debt €363 billion.
    • The country’s GDP dropped by just 0.3 percent in the past few months, its best performance since 2008.
    • Proportionately Greece uses more oil, coal and nuclear energy than many European nations, yet is well-located to exploit renewables.
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    Audio

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In the past few months, Greece has made important advances in crisis management. Its gross domestic product dropped by just 0.3 percent – the best performance since 2008 – and a slight increase is possible in 2014. A tourism boom and restoration of competitiveness have contributed markedly to its economic recovery. The Greeks have achieved a primary surplus in the national budget and regained their footing in international capital markets.

Greece deserves acknowledgement for this. But Prime Minister Antonis Samaras, with an eye on his political future, is now requesting more financial leeway from European partners, mostly on tax policies.

Even socially minded economists (I count myself as one) who would have absolutely allowed the Greek people compensation for their income losses are pained about Mr. Samaras’ plans. His strategy is going in the wrong direction.

If he goes through with it, Mr. Samaras will restore the old Greece instead of laying the cornerstone for a new one. For example, he wants to reduce the extra levy on heating oil first introduced in 2011. Although the country would seem, from its geographic location, predestined for the expansion of renewable energy sources, proportionately Greece uses more oil, coal and nuclear energy than many European partners.

If he goes through with it, Mr. Samaras will restore the old Greece instead of laying the cornerstone for a new one.

Take Denmark as an example. This sun-deprived nation will enforce a strict ban on the use of fossil fuels in newly built private houses and office buildings in 2016. In sunny Greece, Mr. Samaras on the other hand plans to set his outdated energy-supply structure in stone through his tax plans. That would not only damage the trade balance, but also make it difficult to secure a brighter economic future for Greece. The same applies to his plans to lower the “solidarity tax” on higher incomes. That would harm the young generation and low-paid workers who are suffering the most from the effects of the crisis anyway.

Also, property taxes would be lowered, especially for those with a second home. A property tax was insisted upon by the European Commission, IMF and European Central Bank after the crisis and a moderate tax ensures that existing economic assets will be efficiently used. For example, some owners of big houses on the Peloponnese Peninsula in southern Greece have recently discovered that they can rent out the ground floor profitably to fledgling companies.

Generally, top politicians should ask themselves where they see their country in 2030. To develop a long-term vision, and to align the political strategy consistently with it, is especially important in crisis-stricken countries.

Greece can still do a lot for its sustainability without having to ask permission from Brussels or anywhere else. The creation of new businesses, the most natural source of employment growth, could be tax-free for the first two years of operation. They could also reduce taxes on the purchase of cars and motorcycles with cleaner engines, or on the construction of energy-efficient real estate.

Young Greeks don’t just need jobs, they need to believe their country can develop a sustainable economic structure.

Greek policies could also be used to revive accelerated licensing procedures for new industrial zones, a system used for the Olympic Games in 2004. The settlement of companies in structurally weak regions could be further supported through a loosening of bureaucratic restrictions.

The politicians in Athens, however, must make a core decision first: Do they want to re-establish the privileges and structures of the pre-crisis times? Or do they want to bank on the promising potential of the younger generation and new companies?

The answer should be clear. It is the younger generation whose trust in Greece’s future must be strengthened. Young Greeks don’t just need jobs, they need to believe their country can develop a sustainable economic structure. Not until this confidence is achieved will Greece be over the hump.

The author is the director of the Austrian Institute for Economic Research and can be reached at: gastautor@handelsblatt.com

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