Greece is cutting its deficit more quickly than expected. The government unveiled a draft budget this week that predicted a deficit of 7% of GDP in 2011. That’s below the target of 7.6% it agreed with the IMF and the EU. And this year’s budget deficit will be 7.8%, below the 8.1% target. The shortfall reached 13% of GDP last year. Greece hopes to cut it to 3% by 2014. By then, its overall debt pile is on track to hit 150% of GDP.
What the commentators said
The encouraging news reflects rapid progress in cutting spending, said Lex in the FT. Pensions and public-sector wages have been slashed by 15% and 10% respectively. But it’s not all good news. Faster-than-expected cutting offset disappointing revenue figures. The tax take was supposed to rise by 14% this year. But so far the increase has been just 9%. Tax collection is Greece’s “Achilles heel”. If Greece “is ever going to manage to pay its debt… the private sector is going to have to start paying its taxes.”
Governments think that cutting spending is harder than raising taxes, said Pierre Briançon on Breakingviews. “It’s just the opposite in Greece.” Paying taxes is the exception, not the rule. “It’s become a cultural trait”, a Greek tax collector told Michael Lewis in Vanity Fair. “The Greek people never learnt to pay their taxes…because no one has ever been punished [for evasion]. It’s a cavalier offence – like a gentleman not opening a door for a lady.” Two-thirds of Greek doctors have declared incomes of under e12,000 a year – the tax-free allowance. Because the courts spend up to 15 years on tax cases, virtually nobody is prosecuted.
The government is to introduce a tax amnesty and clamp down on corruption among tax inspectors, said Briançon. But it has a long way to go before paying taxes is seen as the norm. Especially as it will need the help of civil servants who have just had a massive pay cut. “Good luck to it.” Throw in the fact that the government’s growth projections from 2011 onwards look unrealistic, said Capital Economics, and this crisis is nowhere near over.