A solution on the cards
Faced with the need to reduce this year’s budget deficit-to-GDP ratio to below the 3 percent threshold, the government has addressed the situation in a way reminiscent of its predecessors, both socialists and conservatives. In doing so, it has shown that lack of imagination in the exercise of economic policy has never been exclusive to either of the major Greek political parties. It is strange but an old adage popular among anarchists may describe the current situation better than any other: «Imagination to power.» By just looking at the tax-enhancing measures adopted by the government to avoid having the economy placed under the watchful eye of the European Commission, one might conclude that the slogan accurately describes economic policy. In a country where almost no one wants to pay taxes even if it is for the public good, the only way for a government to enhance tax revenues is to broaden the tax base, without resorting to ad hoc measures. This requires imagination, meaning a medium-term commitment on the part of the government to a cashless society where electronic money replaces cash. This of course requires that the government ensures that the average Greek has incentives to use his or her credit or debit card to make payments and there is no company which does not accept such payment, insisting on getting paid in cash or via a bank loan. The goal is to record all transactions, thereby curbing tax evasion among many professionals and companies and boosting tax revenues while being fair. Undoubtedly this is easier said than done for various reasons. First, many older people are not comfortable about using electronic money. So, it will be many years before usage of cards for payments becomes the only medium of exchange. Second, it will require that all intermediaries, especially banks and credit card companies, drastically cut their charges. Third, it will require additional investments in technology to process transactions faster and more efficiently. Fourth, the government may consider – at some point down the road – penalizing those still using cash in order to accelerate the switch. Of course, making cashless society a goal, for the benefit of both social justice and economic efficiency, cannot be attained if the government takes measures to dissuade citizens from using their credit cards for payments. The conservative government is reportedly thinking of making the use of credit cards a criterion for determining somebody’s income. By so doing, it will discourage households from using electronic money which brings the opposite result. In the meantime, the chorus of opposition politicians, trade unions, tax dodgers and others will continue to cry out against the tax measures, as the government maintains that it acted responsibly to avoid the worst in the face of the international credit crisis, stressing also that the tax burden is moderate and shouldered in a fair way. This will not convince various professional groups that declare an annual average personal income of 10,000 euros or less per household to refrain from expressing their strong opposition, even thought they know that their actual income is two, three or even more times higher than the above amount. In doing so, they will argue that some members of their profession are treated unfairly because their true income is close to or even lower than the average income of their group. Of course, the sharp increase in car registration fees and some other measures will hit a larger portion of the population, including salaried workers and pensioners. Judging from how it has handled the situation so far, there is no doubt the government will follow the usual route and insist that it is doing the right thing in making sure that the budget deficit does not exceed the 3 percent of GDP mark and going after groups of professionals who evade tax. Although the additional tax burden from the new measures is relatively small, the general impression remains that incomes are being squeezed considerably and the economy is going down the drain. Of course, this is not true. Although there is indeed a deceleration in economic growth which may become even more apparent in the next two to three quarters – after all Greece is not a closed economy that can ignore what is going on in the rest of the world – the local economy is expanding at a satisfactory clip of 3.5 percent. One may argue that the government should have acted earlier in its second term to address any fiscal weakness, reform the budgetary process and overhaul the tax collection mechanism to achieve its goal of keeping the budget deficit below 3 percent of GDP. Still, a more meaningful alternative would be to set the goal of turning Greece into a cashless society. This, however, requires both long-term commitment and imagination.
