Arithmetic lesson
Nov 19th 2009 | ATHENS
From The Economist print edition
The politics of deficits and economic statistics
GREEK government statistics are notoriously unreliable. But rarely can the numbers have seemed more erratic than in recent months, when the forecast for this year’s budget deficit more than doubled from 6% to 12.7% of GDP. What went wrong? Electoral politics is a big part of the answer.
Tax collection “collapsed almost totally” after the first quarter, says George Papaconstantinou, the new Socialist finance minister. Revenue-raising slowed in the run-up to the European elections—a traditional ploy by Greek governments to keep voters loyal—then stagnated over the summer and during the national election campaign in September. A pre-election splurge (another tradition) helped widen the deficit. And as the economy weakened during the financial crisis, tax evasion rose: VAT receipts, for example, fell steadily.
Mr Papaconstantinou, an unassuming economist who worked for the OECD, a think-tank of rich countries, had two weeks to assemble a budget that aims to reduce the deficit by 3.3% of GDP next year. The reduction would come mainly from increasing revenues (businesses, for example, will pay a one-off extra 10% tax on last year’s profits) rather than from spending cuts. Mr Papaconstantinou says, though, that overall spending will fall by 1.8% due to cuts in defence outlays.
Under pressure from the European Commission, which frowns upon one-off measures, Mr Papaconstantinou says he will immediately tackle the structural reforms that his ineffectual predecessor, Yiannis Papathanassiou, had postponed. These include raising the retirement age eventually to 65 for women, opening up a range of “closed” services (from notaries to taxi drivers) to improve competitiveness and introducing five-year rolling budgets for ministries (to curb pre-election spending). The tax system, too, would undergo a radical overhaul.
Will his economic data be any more credible than previous ones? Mr Papaconstantinou has promised to make the state’s statistics service independent by next year, with the help of the central bank. Its data are still changing, though. The number crunchers revised last year’s growth figure downward, from 2.9% to 2%. They also admitted that Greece sank into recession earlier than they had announced: instead of growing by 0.3% in the first quarter, as claimed, the economy shrank by 0.5%. This may be a belated burst of honesty. Yet the suspicion remains that the figures are now being massaged to discredit the previous government—and highlight the achievements of the current one.
