Greece Economy Briefing: the Economic Priorities of the Greek Government George N

ISSN: 2560-1601

Vol. 21, No. 2 (GR)

Sept 2019

Greece economy briefing: The economic priorities of the Greek government George N. Tzogopoulos

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The economic priorities of the Greek government

Kyriakos Mitsotakis was elected two months ago as Greece’s premier replacing his leftist predecessor Alexis Tsipras. He had pledged to revamp the country’s economy a year after the end of its third international bailout. Mitsotakis has visited Germany, France and the Netherlands in recent weeks to appeal to his European counterparts to support his campaign and also invest in Greece. Some of the measures he has announced before and during the Thessaloniki International Trade Fair will certainly have a positive impact on the society. Bu the mission of the government is difficult. It has to be seen whether more foreign investments will take place and if Greece’s creditors will considered already voted measures in line with fiscal requirements.

The Thessaloniki International Fair is a trade exhibition which takes place in Greece’s second biggest city (Thessaloniki). It was first held in 1926 and has played a significant role in strengthening economic and diplomatic relations between Greece and participating countries. It is currently fostering entrepreneurship and innovation and aims at promoting the Greek economy in a period during which foreign investments are necessary. In recent years the Thessaloniki International Fairs honors foreign countries. It was China in 2017, the USA in 2018 and India in 2019. But this year’s event was also significant because it marked the first presence of Kyriakos Mitsotakis as the Prime Minister of the country. Mitsotakis paid a visit to the trade exhibition and toured the pavilions and stands on Saturday 7 September 2019. He then delivered a speech on the government’s economic policy at the Vellidio Congress Centre as every Greek premier is annually doing.

The Greek Prime Minister who came to power in July after his conservative New Democracy party won the national election, has promised to bring the country back to what he describes as ‘normality’. As far as taxation policy is concerned, the new government has reduced the property tax (ENFIA) by 22 percent (on average). In the view of Mitsotakis this reduction not only shows he is practically determined to serve the interests of the middle class but also outlines his sincerity in approaching the electorate. Before the January 2015 election Alexis Tsipras – then leader of the main opposition SYRIZA party – had promised to abolish the property tax – but while in power he was forced to sign another bailout and failed to do so. According to the Greek Premier four million Greeks are benefiting from the property tax cuts. The annual budget cost of these cuts is estimated at approximately €205 million.

The new Greek government has also introduced a programme offering relief to indebted households and companies. In particular, this scheme provides for the inclusion of all debts that became overdue up to 31 December 2018 with a provisional 10 percent discount on interest and penalties. Additionally, it allows the repayment of arrears in up to 120 installments for individuals and corporations for debts up to €1 million euros and in up to 36 tranches for debts in excess of €1 million euros. Mitsotakis referred to the success of this scheme in his Thessaloniki speech and urged interested citizens and firms to apply by meeting the deadline of 30 September as no extension will be given. Leading newspaper Kathimerini reports 318.000 individual taxpayers and companies had already applied to join the programme at the beginning of September and expected more than 500.000 debtors to have done so by the end of the month.

As far as future taxation measures are concerned, corporate tax will be cut to 24 percent in 2020 from 28 percent. The long-term objective is for it to be reduced to 20 percent in the future. Furthermore, tax on dividends will be halved to 5 percent. Mitsotakis also announced the tax-free threshold on incomes would be maintained and promised to lower the tax rate to 9 percent from 22 percent on incomes of up to €10,000 annually. Moreover, his government will offer an additional tax exemption of €1,000 per child and a monthly financial support of €180 euros for each slot in kindergartens. All baby items, child seats and motorcycle helmets will be taxed at a lower VAT rate of 13 percent. It will also give a €2.000 subsidy for each new child born with the exception of families belonging to very high-income categories.

The Greek Premier also places emphasis on social policy. Specifically, his government will preserve the payment of an extra subsidy to pensions continuing the relevant policy of SYRIZA. And from 1 July 1 2020 it will gradually reduce social security contributions by five percentage points up to 2023 (for those in full-time employment). The expected percentage of reduction next year will be 1 percent. With reference to self-employed, the government plans to abolish some levies but no specific details have been revealed. This will not happen in 2020 according to Mitsotakis’ words in Thessaloniki.

Beyond the afore-mentioned measures, the Greek Prime Minister envisages to kick-off the national economy. Within this context, he promised to scrap value added tax on new construction for three years and capital gains tax on property sales as well as to guarantee a 40 percent discount for the energy upgrade and refurbishment of buildings. Mitsotakis’s personal bet is the revival of the privatisation programme. The acceleration of the sale of stakes in natural gas company DEPA, in biggest oil refinery Hellenic Petroleum and in the Athens International airport are priorities. Only a few days after Mitsotakis speech in Thessaloniki the government’s

2 economic policy council unblocked the process for the sale of a 30 percent stake in Athens International Airport.

Generally speaking, foreign investments can certainly revive the national economy of Greece. The example of COSCO is characteristic. In his Thessaloniki speech Mitsotakis praised Greece’s win-win cooperation with China and noted COSCO’s ‘flagship project’ in the port of Piraeus is expected to generate new wealth. The Greek Shipping Ministry will issue its response concerning the realization of the so-called Master Plan of the Chinese company next month. If implemented, this Master Plan will lead to investments worth of circa €800 million. The Prime Minister said 2.500 people will work during the works stage, while 3.000 permanent new job positions will be created. In April 2019 – while in the main opposition – Mitsotakis had visited COSCO’s premises in the port of Piraeus and publicly supported its investments.

Greece also counts on the American support. US Secretary of Commerce Wilbur Ross visited Athens at the beginning of September. In the opinion of Ross Greece is still an over- regulated economy. This delays business decisions and inhibits investments. But he appeared confident the current center-right Greek government would be determined to act. Mitsotsakis will travel to New York for the UN General Assembly and during his visit he is expected to meet several American businessmen. He has already announced multinational pharmaceutical company Pfizer chose Thessaloniki for the creation of one of its six digital laboratories aiming at capitalizing on technologies such as artificial intelligence and big data analytics for the development of new treatments.

Moreover, there are two other investments the Greek government is paying close attention to. The first is the one of the Canadian miner Eldorado Gold that has two operating mines and two development projects in northern Greece but has struggled with permit delays at one location, Skouries. And the second is the long-delayed Hellinikon development project. The consortium to undertake the workds is led by Lamda Development in partnership with the Chinese Fosun Group, and Abu Dhabi-based developer Eagle Hills Properties. Despite existing optimism, experience from the last years demonstrates bulldozers have to start the work for it to be considered as doable.

Conclusion

The first two months of the Mitsotakis’ administration are promising. Some of his taxation measures will almost immediately offer some relief to the society. However, the next months will show whether the government is on the right track. Current policies had been already designed before the national election under calm circumstances. The future mission of the government can hardly be considered as easy, although European lenders expect the national economy to grow by 2.2 percent in 2019. The primary budget surplus of 3.5 percent of GDP in both 2019 and 2020 has not been changed as targets to be caught. This means some economic measures of the government will not be necessarily in line with the requirements of Greece’s creditors, especially if foreign investments will not be practically unlocked. Greece creditors could ask for counter-measures should fiscal goals were not met. Mitsotakis is right to believe Greece is no longer Europe’s black sheep. The achievement of sustainable growth and the recovery of the real economy should not be taken for granted though.