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The formula for success in Greece is a 70% haircut of the foreign debt and a flat tax rate

18 July 2011 / 22:07:10  GRReporter
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The big difference between the Bulgarian and the Greek reality is that the tax rates for companies and individuals are extremely low in Bulgaria. Unfairness is not possible and tax control is better in these favourable conditions for business. Low taxes are important for economic growth and they help people to be creative and productive. After providing this opportunity, the state has the right to control strictly the citizens and the origin of money in the economy.
 
In Greece, however, there is a heavy burden on taxpayers - extremely heavy taxes and excise duties, which can reach 70% of the profits of companies and 60% of personal income, directly and indirectly. These high taxes and the unclear use by the private sector make the citizens “hide” in the informal economy. It is proven that it has the highest growth in countries with high taxes. Actually, people refuse to pay their taxes to be able to buy a property, because otherwise the state will impose a tax of 60% -70%.

Informal economy is not always a bad thing and it is important for the country when economic conditions are such as in Greece now. The bad thing, however, is when the state provides very serious privileges, but the taxpayer is not correct, as in Bulgaria. There is no lower corporate tax in Europe than in Bulgaria. Actually, if we compare the economic models of the two countries we will understand why Greece needs to release the measure for the control of the money for the first property and why Bulgaria does not need such a measure.

Currently, there is much talk about selective default in Greece and it seems that the country would not get away with it. What do you think about that and how do you think it would affect the citizens and the companies in the country?

This selective default is not the default Bulgaria has experienced in 1997. Then everything collapsed suddenly - almost the entire public sector, the banks, hundreds of enterprises, people lost their jobs, it was a national catastrophe in general. The selective default in the case of Greece is a procedure that will reduce the debt of Greece with the help of European institutions and banks. It will reach 360 billion Euros by the end of the year, which is an amount impossible to be repaid. I think there is not even one in a thousand a chance that this debt becomes manageable. The economy is in recession, there is a drop in production and the obligations are rising. The budget revenues from taxes are not sufficient to serve the debt, even in case of a reduced deficit.

As I have said before, the correct course of action is a selective default, which will reduce the debt by two-thirds of its current value or 70%. This means that it would fall from 360 billion to 120-150 billion. Of course, we should be aware that it would take decades before Greece returns to the capital markets after such an action. It takes time to convince the investors once again that the economy is stable, provides accurate numbers and statistics, and is properly managed. It would take at least ten years to restore this trust, but Greece will be released from the huge interest rates on the accumulated debt. This step will have a positive effect on the private sector because it will be made by agreement and not chaotically.

However, even if the Greek debt is zero, there remains the high budget deficit. At present, the country lacks around 10 billion Euros each year in order the revenues to cover costs. How this discrepancy could be fixed?

The debt will be reduced, which will enable the reduction of taxes in the country. It is logical in these conditions to reduce the corporate tax and that of individuals, because this will be the only way to stimulate economic growth. Therefore, I think that New Democracy's proposal for change to a flat tax of 15% is extremely important and together with the cancellation of part of the debt will rescue the Greek economy. Furthermore, a very small part of this haircut will be at the expense of some banks, because European countries and mainly the European Central Bank are holding the majority of Greek government bonds.

If Greece was still using the drachma, we should talk about devaluation. As we are using the common euro currency, there should be coordination for the selective default. In all cases, however, the other thing that should be done is to reduce the costs in public administration and public enterprises. They are the main culprits for the accumulated huge external debt.

Do you think the government's privatization program will succeed and will bring 50 billion Euros by 2015?

No, I do not think so. This is impossible. I would like to add something. In Greece, the state holds many public enterprises, which is a big mistake. It should sell them as Bulgaria did years ago. The state neither has the resource, nor is it its business to deal with these companies. Moreover, there is nothing in common with the modern western way of public management.

Your son is one of founders of the event of the movement of Discontented on Facebook. What do you think of the movement on Syntagma Square in front of the Parliament?

Tags: EconomyMarketsGreeceChristos MouroutisForeign debtCrisisSelective dafault
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