There are many things for which Finance Minister Evangelos Venizelos will be called a liar over the weeks to come, but something he said in his muddled news conference on Tuesday rang true: It was when he explained how he found it “impossible to explain” to those outside Greece the opposition parties’ stances on how the country should tackle its economic crisis.
As flawed and damaging as the eurozone and International Monetary Fund-inspired austerity program has been, the alternatives being suggested by the opposition have been even more confused and unrealistic. The prime target for Venizelos’s comment was PASOK’s main political rival, New Democracy, which has elbowed even the Communist Party out of the way in its effort to be in the front line of those opposing the current formula for overcoming Greece’s massive debt problem.
Conservative leader Antonis Samaras has a very tantalizing message for the Greek people. He suggests that instead of suffering higher taxes and job losses, the fiscal adjustment can be virtually painless. He has based his opposition to the PASOK/troika strategy on a platform of lower taxation and more incentives for business. Few things could sound sweeter to Greeks, who are being hit with new taxes on an almost weekly basis, than giving up less of their wages to the public coffers. But the fact that the government is abusing its power to impose levies on its citizens does not mean that Samaras’s formula is the answer either.
As much as ND argues that the country could benefit from lower taxation like other eurozone countries — such as Ireland, which has held on to its low business rate, and Spain, which reduced its property tax to rekindle its real estate market — the numbers simply don’t add up for Greece. Its revenues are proportionally lower than those in Spain and Ireland due to tax collection problems, evasion and a deep recession. This means Greece cannot follow the same formula as Spain or Ireland.
A cut in taxes now, without rectifying the problem of tax evasion or the structural weaknesses that hold back growth, would simply leave Greece with a bigger hole to fill and further from the primary surplus it craves. Samaras claims the lower rates would generate greater economic activity, thereby bringing in more tax revenues. But there are several problems with this theory. For instance, it would leave Greece with a fiscal shortfall and larger deficit in the short term, which the country’s international lenders (its only source of funding at the moment) would never accept. Also, Samaras is basing his policy on the principle that lower taxes will mean more spending and investment when it’s not at all clear this is what would happen. Neither Greeks nor foreigners with capital will invest just because taxes are lower. The rest of the structure to promise good returns has to be there and in Greece it’s not. Equally, there is plenty of economic analysis to suggest that if households are allowed to hold on to more of their income during the uncertainty of a crisis, they will save this money rather than spend it.
The flaws in his tax argument undermine Samaras’s declared intention to “renegotiate” the loan memorandum with the European Union and the IMF. The weakness of his party’s stance on public sector reforms makes the ND leader’s claim seem not so much pie in the sky but blancmange in the stratosphere.
Under a New Democracy plan to cut taxes immediately, Samaras would have to plug the fiscal gap by either raising substantial revenues from privatizations, which has already proved a daunting task, or he would have to cut public spending. Yet through its recent actions ND revealed qualms about doing the latter. Although it talks about a smaller state sector and has, correctly, slammed the government for its delays in slashing waste and reforming public administration, when push has come to shove the conservatives have shown themselves reluctant to support painful cuts. For instance, ND reacted to the government’s scheme to phase out about 30,000 civil servants through a labor reserve program by saying the conservatives would cancel the initiative if they came to power and would return these bureaucrats to their previous posts.
The fact that the conservatives jumped to the defense of public servants even though ND has proposed its own scheme to put bureaucrats in a standby labor pool smacks of crass opportunism. When the conservatives came to power in 2004, they pledged to overhaul the public sector but only succeeded in making it bigger. Now in opposition, Samaras and his team have had few proposals to offer in terms of improving public administration. In fact, the opposition leader spent much of his time during his soporific appearance at the Thessaloniki International Fair earlier this month warning the government not to remove civil servants from their posts based on their political leanings. With Greece facing the prospect of bankruptcy as a result of years of this type of parochial politics, the onus is on Samaras to be a renaissance man but he appears to be chained to a bygone era. It’s one of the reasons there is no great tide of public opinion poised to sweep New Democracy to power, even though the party’s leader likes to suggest otherwise.
Samaras is actually in danger of rendering New Democracy the political equivalent of Status Quo, the British rockers that made a career out of only playing three chords. Like one of the group’s songs, Samaras’s pronouncements might seem mildly appealing at first with their references to low taxes, sudden growth and untouchable civil servants, but the more you hear them, the more shallow and futile they sound.