Economic survey of Greece 2007: The gains from prompt fiscal consolidation

 

Contents | Executive Summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise Chapter 2 of the Economic survey of Greece, published on 30 May 2007.

Contents                                                                                                                           

How can fiscal policy be put on a sustainable path?

There has been substantial consolidation since 2004. Future consolidation should pursue a better control of primary current spending, and in particular increased efficiency of public administration. There is also scope for enhancing tax revenues further through fighting tax evasion and through other measures to broaden the tax base. Success in these efforts should allow more rapid debt reduction as well as providing resources for spending on alleviating poverty. As previously noted, ensuring long-run fiscal sustainability will also require structural reforms in the key area of health and, above all, a timely decision to comprehensively reform the pension system.

Developments in general government fiscal balances

1. Projections.
2. Measured by the change in the cyclically adjusted government primary deficit, a positive value represents stimulus.
Source: OECD (2006), OECD Economic Outlook: Statistics and Projections, No. 80 online database.

Spending on public administration absorbs a much higher percentage of total government outlays than in most other OECD countries, with no evidence that the services delivered are superior. This suggests that important social, political and economic goals could be achieved with significantly fewer resources. Recent improvements in the client friendliness of public services, notably the establishment of “one-stop shops” (Citizen Centres) for the provision of administrative services, and changes to lighten the burden of administrative regulations on business are welcome. Further steps towards simplifying procedures are nevertheless warranted. For example, the number of procedures and the time taken for starting a small business are still among the highest in the OECD, and further simplification would not only help to establish businesses, but would also require less resources to administer. A further important objective is to reduce over-staffing and raise productivity in the public sector to enhance the quality of services and contain wage pressures. Initiatives underway to improve performance evaluation and tighter recruitment procedures are therefore welcome and should be implemented without delay. Improving the performance of public enterprises should also remain a policy priority. The operating losses of such companies stood at around ½ per cent of GDP in 2006, with a similar share projected for 2007. In this context, the new law rationalising the operation of public enterprises is a step in the right direction. The rapid implementation of the new Management Information System that will improve the control and operation of public enterprises is of great importance. It will link the financial departments of the public enterprises, allowing the monitoring of their performance and the evaluation of outcomes compared with budget targets. A general concern that remains is that there has often been a gap between legislation passed on public sector reforms and their timely implementation. Thus, a focal point of public sector reform should be to ensure that policies are fully implemented once the legislation has been passed.

There is scope to make the tax system more lucrative and less distortionary at the same time. A number of reforms have been undertaken to improve the functioning of the tax system, with particular emphasis on its simplification. Recently, corporate tax rates have been reduced to promote business activity and investment and attract foreign direct investment (FDI). Another focus of the reforms is the reduction of tax evasion via an upgrading of tax auditing and the restructuring of audit services. The need to ensure that the tax system is more efficient and competitive limits the scope for raising revenue through higher corporate tax rates and/or increasing social security contributions, especially in view of an already high tax wedge. There is some scope to raise the rate of consumption taxes, although the indirect to direct tax ratio is already high. Accordingly efforts to raise revenue should focus on further reductions in tax evasion and a broadening of the tax base by phasing out remaining distortionary exemptions. This could be achieved by ending the preferential treatment of some products, professions and regions and eliminating many of the remaining exemptions in corporate taxation. Moreover, the remaining stamp duties and distortionary “third-party” taxes should be abolished.

As in other OECD countries, population ageing and non-demographic factors, such as technical progress and relative price movements, will put upward pressure on public health care spending. Improving the efficiency of health care services would help to contain future cost pressures. A high level of private spending on health care largely reflects inefficiencies in the public health care system that leads to excessive waiting lists. Long-standing problems include the inefficient operation of public hospitals and the lack of an effective primary health care system. On-going initiatives to tackle these weaknesses have focused on modernising the structure of the National Health Service, upgrading its management and rationalising health expenditure in critical areas. But the full effect of the reforms in containing spending is yet to come.

Additional measures will be needed to restrain health care expenditure and improve the quality of services. These include better pricing and costing mechanisms, which are part of the government’s longer-term reform agenda, announced in 2004. A pricing scheme for the reimbursement of public hospitals for different types of in-patient services, if implemented, would be an important step forward. Regarding primary care, the fast development of a well-functioning network – indispensable for the reduction of geographic disparities in the provision of health services and for providing a “gatekeeper” to specialists and out-patient care – would depend largely on the incentive schemes for general practitioners and other medical personnel. International evidence suggests that a more diversified system of payments, including a fee-for-service component, would reduce waiting lists for elective surgery and raise the activity rates of physicians, while simultaneously ensuring that more attention is paid to patients’ preferences. A move towards a more accountable hospital management, together with a pricing system and well-developed primary care would provide a better basis for containing costs while addressing shortfalls in the quality of health services.

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.

The complete edition of the Economic survey of Greece 2007 is available from:

Additional information                                                                                                  

 

For further information please contact the Greece Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Dave Turner, Vassiliki Koutsogeorgopoulou and Pamfili Antipa under the supervision of Peter Hoeller.

 

 

 

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