After four days of conflicting media reports and clumsy attempts by the ruling party to safeguard its interests, Dr. Loucas Papademos has been officially given the mandate to form a government by Greece’s President, Karolos Papoulias.
The challenges facing the new government are significant; its political support is limited. With this post, I would like to outline four suggestions which could help the country emerge from this crisis in the next year.
1. The Formation of the Cabinet
It is of paramount importance that a cabinet is structured properly and then staff properly. Some key points to consider are the following:
a. The complexity of the Greek public sector requires two independent ministries which reflect the main components of Greek GDP: Tourism and Shipping. At present, tourism is considered a secondary ministry, without a real budget, while shipping has been subsumed into Development. It is important that these two posts be made independent, resourced properly, and staffed by professionals from the sector.
b. The functions of energy and environment must be split. Within the new Energy Ministry, priority must be given to starting exploration and development of oil and gas south of Crete, in the Ionian Sea, and elsewhere. Within the Environment Ministry, priority must be given to the active management of wildlife areas and natural parks, as well as enforcement of zoning laws and building codes.
c. A new Ministry of Investment and Privatisation is required. The Invest in Greece agency should be brought into this structure, as should the Public Asset Management Agency. A specific privatisation plan is needed.
2. A Plan for Growth
a. Creation of an offshore shipping centre to transfer ship registrations to Greece with a target of increasing from 2,046 in 2010 to 3,000 by 2015 and 4,000 by 2020.
b. Promotion of investment in oil and gas as well as building materials. This should include the definition of at least 50 exploration blocks south of Crete, between Crete and Rhodes and in the Ionian, and licensing of at least 25 exploration campaigns in 2012.
c. Energy sector investment promotion to replace lignite-burning units with natural gas generation with at least 8 large-scale units, as well as investments to create at least 10 integrated waste management centres in Greece.
d. Increase in tourism arrivals from 16 million in 2011 to 25 million in 2020.
e. Licensing at least 10 integrated resorts, 100 special-interest products, long-term PPP partnerships for ports and airports, and other projects designed to improve the tourism product in Greece.
f. Creation of a pre-approved real estate “bank” and promotion of foreign investment in at least 20,000 vacation houses per year.
g. Licensing of large-scale modern agricultural investments in advanced technology.
By our estimates, the total investment value of this plan is EUR 80 billion, creating at least EUR 7.5 billion in initial tax revenue during the investment period, and yielding at least EUR 11 billion in annual tax revenue once peak operating capacity has been reached. These do not include revenue from hydrocarbons, which would be much greater. We also believe that these objectives are conservative and achievable.
3. A Plan for Social Survival
Greece is entering a depression. Unemployment will almost certainly reach 20% by the end of 2011; homelessness and hunger are increasing. It is imperative that the government activate emergency planning and access resources to provide hope in these desperate times. The basic dimensions of such a plan include:
· The provision of vouchers for school lunches or equivalent support for 300,000 needy students
· The provision of emergency food support for at least 300,000 families, enabling basic nutritional support to be met
· The partial subsidy of at least 250,000 places of strictly temporary employment, either in the public or private sectors, preferably to be managed by non-governmental organisations or bodies
· The end of the tax increase on household heating oil.
School Lunch Programme
Emergency Food Support
The costs of such a plan are high, at EUR 2.62 billion. I propose that these be paid for as follows:
· Increase tax rates on cigarettes, alcohol, and carbonated soft drinks
· Drawing down unused resources from the European Social Fund, EQUAL and related funds from the 2007-2013 Community Support Framework
· A solidarity tax of 1% on all stock market transactions
· Re-allocation of some privatisation revenue, i.e. on games of chance
4. Tax Audits, Financial Amnesty and International Audits
The government must get serious about gaining a clear picture of untaxed income. It is impossible that the burden of revenue raises is borne primarily by salaries employees, whose share of direct income tax is usually 5 times that paid by companies. It is also necessary to audit independent professionals and offshore accounts more closely. The following are recommended:
a. Automatic financial audits implemented on each taxpayer using a comparison of six key indicators per individual:
· Bank account total income cash
· Total bank loans and monthly instalments
· Income tax statement: annual revenue
· Total value of annual credit card purchases
· Area (square meters) of home ownership
· Type & model of car owned
These six factors generate a composite and accurate picture of true versus stated income. It should be implemented at once, taking into account a permanent lifting of bank secrecy.
b. International deposit investigations and tax collection. These are underway in Switzerland. Greece also needs to form bilateral accords with Luxembourg, Lichtenstein, the United Kingdom and Cyprus for tax collection on bank deposits.
c. Ending nominee shareholding for Greek citizens holding companies in Cyprus. The government of Cyprus should be required to turn over all income declared by Greek-held offshore companies to check if this income has been declared in Greece or not.
d. A financial amnesty for undeclared funds repatriated by Greeks from international financial centres should be developed.
While technically challenging, none of the four clusters of recommendations made here are impossible to implement; most of them are relatively easy. It remains to be seen if this government can finally emerge from its reactive mode and begin the process of strategic planning and implementation of activities needed for Greece’s economic and social survival.
© Philip Ammerman, 2011