The Greek prime minister's eagerness to accelerate growth by quickly cutting taxes is risky
OVER THE past decade Greece has not been the easiest place for politicians who want to be liked by voters. The newly elected centre-right government is trying its best. In his first few weeks in office Kyriakos Mitsotakis, the prime minister, has announced tax breaks for ordinary Greeks as well as for corporations. He has promised not to cut social benefits or fire any public-sector workers.
Winning over the EU and the IMF will be harder. Asked about the new Greek government at her annual summer press conference, Angela Merkel, the German chancellor, called the bond issue “very positive” but sounded a note of caution: “We will have to see how things evolve.” He has also made it clear that he will not broaden the tax base, a long-awaited reform that Syriza reneged on last year. Miranda Xafa, a former IMF economist, points out that seven out of ten Greeks pay less than €100 a year in income tax. Getting more people to pay tax “would help pay for the tax-rate cuts and make burden-sharing fairer,” she says.
The prime minister nonetheless promises that Greece will stick to a harsh budget target this year and next already agreed with its creditors: a primary surplus of 3.5% of GDP. The Syriza government led by Alexis Tsipras, Mr Mitsotakis’s predecessor, outperformed this target last year by increasing taxes and making deep cuts in the public-investment budget. Creditors were impressed by Syriza’s fiscal rigour, but growth was subdued. This year’s GDP forecast is around 2% , well below the 3.
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