Greece’s new finance minister vows to prioritise tax reforms
Greece’s new finance minister has said that implementing sweeping tax reforms will be his “key priority” as his country seeks to boost growth and rebuild credibility with investors following a decade of international bailouts backed by the EU and IMF.
Christos Staikouras told the Financial Times that the centre-right New Democracy government is planning “a comprehensive tax reform that will have a four-year horizon and will accelerate growth”.
The overhaul will focus on reducing income and corporation tax, cutting VAT, streamlining tax incentives for investors and abolishing emergency levies imposed during the Greek debt crisis to meet conditions set by bailout creditors.
“The fundamental objective is to achieve sustainable high growth rates so as to gradually restore the country’s lost wealth,” Mr Staikouras said in his first interview with a foreign media outlet since he took office after last month’s election.
New Democracy, led by Kyriakos Mitsotakis, swept to victory over the leftwing Syriza party of former prime minister Alexis Tsipras at a snap election last month, campaigning on a platform of cutting taxes, digitising the economy and creating new jobs.
The conservatives are also committed to promoting privatisation and embracing several flagship foreign investment projects neglected by Syriza, whose leaders opposed private investment and resisted pressure to broaden the previous government’s privatisation programme.
“We are taking ownership of the reform agenda . . . we will implement structural reforms in a front-loaded manner,” said Mr Staikouras.
“We’ve agreed [with the EU] to accelerate privatisations because we believe they can contribute to sustainable growth rates when . . . they’re carried out under conditions of absolute transparency and also include a social return.”
Mr Staikouras has already pushed through parliament his first piece of legislation, cutting an unpopular annual property tax by an average of 22 per cent per household and giving breathing space to cash-strapped Greeks by reviving a plan for tax arrears to be paid in 120 monthly instalments.
A second tax bill due to pass next month will include a reduction in corporation tax from 28 per cent to 24 per cent. Like the earlier measures, it will take effect immediately.
Mr Staikouras, a former deputy finance minister who oversaw the national accounts between 2012 and 2014 during Greece’s second bailout, is credited with knowing how to pace the tax cuts to prevent any backsliding on the country’s commitment to attaining an annual primary budget surplus — before debt repayments — of 3.5 per cent of gross domestic product.
Despite the cuts already announced, “we estimate we will meet the 3.5 per cent target in 2019, but it’s clear we have no more fiscal space [for additional cuts] this year”, he said.
Given the growing prospect of a recession in Europe, Mr Staikouras is reluctant to make growth projections for 2020 and 2021. But he was confident that Greece would beat its official growth target of 2 per cent this year, given that the business climate has been steadily improving.
Yet much higher growth rates will be needed if Greece is to make up for the 25 per cent fall in gross domestic product during the crisis years. Mr Mitsotakis has argued that the high surplus requirement is strangling growth by squeezing consumption and discouraging public and private investment.
Greece has begun talks with the EU officials charged with monitoring the country’s post-bailout progress in the hopes that the primary surplus can be reduced from 3.5 per cent of GDP to 2.5 per cent as early as next year.
Meanwhile Athens is poised to complete some other measures that would signal to investors that Greece’s economic environment is returning to normality.
In September Mr Staikouras is expected to announce the full lifting of capital controls which were imposed at the height of the Greek crisis, as well as a deal for Athens to repay early about one-third of the €8.5bn in bailout debt that it owes to the IMF.
The ending of capital controls, which date back to mid-2015 when Greece was poised for a disorderly exit from the euro, will send “a message of stability”, said Mr Staikouras. Not only would it encourage exporters, but analysts anticipate that several billion euros of deposits that fled during the crisis would return, easing the liquidity crunch faced by Greek banks and boosting investor confidence.
Mr Staikouras has also revived a stalled plan for early repayment of €3bn of Greece’s €8.5bn debt owed to the IMF, which carries an interest rate of 5.1 per cent. The move comes after Athens raised €2.5bn in the capital markets through a seven-year bond issue at a yield of 1.9 per cent, a record low.
“Our goal is the swift implementation of a coherent and realistic but outward-looking economic plan,” said Mr Staikouras. “We have to move the economy to an upward virtuous spiral.”