Prime Minister Tsipras predicts that Greece will continue to generate larger-than-forecast surpluses [Reuters]
Athens, Greece – The Syriza government on Wednesday approved a slate of tax sweeteners and handouts worth well over a billion euros, as it tried to boost its popularity days ahead of European Parliament elections.
Opposition parties joined Syriza in voting for a measure that allows tax debtors to schedule their arrears in 120 instalments.
They also supported the government in lowering sales tax on food and restaurants from 24 percent to 13 percent.
More controversial was the government’s handout of a 13th monthly pension to 2.5 million retirees.
Syriza has promised further fiscal relaxation ahead of a general election due by October.
“We have a brand and we have recognition value in Europe. It is a left-wing brand and we shall contest the next election as the left and win it as the left,” Finance Minister Euclid Tsakalotos told parliament.
Syriza came to power in 2015 promising to sweep away austerity policies that collapsed the economy to three-quarters of what it had been in 2009. It capitulated, instead, to a further fiscal adjustment programme, but its defiant tone towards its fellow Eurozone members, who are its biggest creditors and principal enforcers, began to creep back last September, when Prime Minister Alexis Tsipras announced a New Economic Policy that would restore living standards.
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“I read that a European official is worried,” Tsakalotos told parliament. “If I had a euro for every time a European official says, off the record, that he is worried or upset or troubled, I could take a whole group of friends to Santorini for 10 days,” he said, referreing to Greece’s popular resort island.
“With this measure we support those who shouldered the greatest burden of austerity policies,” said labour minister Efi Achtsioglou, “We are supporting 2.5 million pensioners.”
Worries about costs
Tsipras has estimated the cost of the 13th pension at 800 million euros, but not everyone agrees with that estimate.
“I think his cost estimates are low,” said Panos Tsakloglou, who served as head of the 2012-14 conservative government’s council of economic advisors. “We have 2.7 million pensioners. The lowest pension is 360 euros. Even if the average handout were a mere 400 euros, the 13th pension would cost a lot more than 800 million.”
Tsakloglou does not think Tsipras has placed enough emphasis on growth after an eight-year recession. “What does our economy need now? It’s growth and changing our production model to depend less on domestic consumption and more on exports and investments,” he said.
“Let’s not pretend we’re trying to boost investments and exports and so on. Let’s just come out and say we’re buying votes. That’s really the thrust of Tsipras’ announcements.”
Reining in tax arrears
Syriza’s tax instalment plan is a revival of a similar measure it passed shortly after coming to power in February 2015. In theory it broadens the tax base by enabling distressed households to pay their debts to central and local government and to social security. But critics say it can also weaken the culture of payment by leaving taxpayers hoping for future amnesties.
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“Syriza’s vaunted 2015 law was a total failure,” said conservative former labour minister Yiannis Vroutsis, pointing out more than half of those who signed up were disqualified for non-payment.
According to March figures, he said, fewer than 9,000 remained in the instalment plan, representing 4.7 percent of the 3.85bn euros that were to have been paid.
The situation now is worse. A record four million taxpayers owe the government money. Vroutsis noted in the last year alone, social security arrears increased by 3.5bn euros.
Towards the end, on page 266, Syriza’s bill dampens expectations by pointing out that tax debts more than five years old stand a one-third or lower chance of being collected.
Sales tax a partial solution
Traders and restauranteurs who stand to gain from the lower sales tax spoke with the guarded relief of entrepreneurs who’ve received a drubbing in the marketplace.
“It’s a good start, but meaningless on it’s own,” said Panayotis Diamantopoulos, who owns Trikyklo, a restaurant in the central Athens neighbourhood of Neos Kosmos. He weathered the crisis by giving himself and his staff pay cuts.
“Earlier this year the government raised minimum wage, and that mostly translated into higher social security contributions, not money in people’s pockets… In the last two months pork went up by 20 percent, and in February and March wineries all hiked their prices.”
Sales tax on the restaurant business went from 8 percent before 2010 to 13 percent, then 23 percent and finally 24 percent. Diamantopoulos said just as restaurants did not pass on the repeated tax hikes to consumers, they won’t now pass on the cut.
“I call it the tax elevator,” said third-generation butcher Yiorgos Handzoglou, “because it’s so unstable.”
Sales tax remained constant at 13 percent for meat, cheese and other over-the-counter goods, but went to 24 percent for most pre-packaged foods, like the condiments, wines, spices and pickles Handzoglou sells in his shop.
That hike, he said, has a compounded effect on retail prices.
“All traders work on profit margins of 30-40 percent, because they have to pay their wholesalers in cash. They aren’t extended credit, the way supermarkets are. Once you place that profit margin on top of sales tax, the retail price is double the wholesale price. And the consumer loses but the trader ultimately goes out of business.”
Is Syriza overconfident?
If Syriza sounds confident, it may be because it has maintained a balanced budget and outperformed targets set by its Eurozone creditors. It estimates that last year it generated a primary budget surplus of 4.4 percent of gross domestic product (GDP), far higher than the 3.5 percent creditors demand.
Over four years it has set aside a rainy day fund of more than 31 billion euros, as a reassurance to markets that it is capable of honouring government bonds. And the government believes that Greece will grow by 2.3 percent this year, far above the Eurozone outlook of 1.2 percent.
Bank of Greece Government Yiannis Stournaras on Wednesday echoed creditors’ concerns that discipline could be derailed. He warned the government not to be overconfident.
“The results of the first quarter… indicate that the budget won’t show a surplus larger than 3.5 percent this year… This means that unless the trend changes, there won’t be fiscal space this year for expenditures beyond those already in the 2019 budget.”
Stournaras, who as finance minister essentially balanced the budget in 2014, said he also believes Greece’s real growth this year will be closer to 1.9 percent.
Tsipras takes a more optimistic view. A week ago, he predicted that Greece would continue to generate larger-than-forecast surpluses and enjoy a “fiscal space” of at least 5.44 billion euros over the next four years with which to expand spending.
He announced a slew of handouts including tax cuts to businesses, farmers and self-employed professionals, tax rebates for investments, social security subsidies to young workers up to the age of 29, even lower sales tax of 11 percent, tax concessions to island economies and cheaper heating oil to colder parts of the country.
Tsipras said the package creates “sustainable growth prospects for the Greek economy in the coming years”, and dubbed his vision “a plan for the Greece of the many”.
Syriza has trailed the opposition conservative New Democracy party by between six and 11 points for two years as it maintained strict discipline on expenditures. It is now attempting to claw back lost voters.
This year it raised minimum wage by 11 percent, partially undoing a 20 percent cut in 2012. It reduced a roundly hated tax on property ownership, introduced in 2011, by 30 percent, and weighted it towards wealthier households.
And it reinstated a protection against bank foreclosures on primary residences worth a quarter of a million euros or less. The protection had been put in place at the beginning of the crisis in 2010, but creditors abolished it in 2015, saying it had contributed to banks’ 100 billion euro portfolio of non-performing loans.
European Parliament elections on May 26 will be a weathervane on the party’s chances of returning to power in October. If recent student elections are an indication, however, Syriza has lost the young. It took 1 percent of the university vote.