Greece: Fiscal discipline isn't all about spending cuts. Ask the Greeks, who are struggling against the consequences of years of irresponsible finance. Month after month, Athens is delivering on pledges it made earlier this year to slash public expenditure as part of its European Union/International Monetary Fund bailout. In a budget on October 4, the government promised to cut the deficit next year even faster than planned. It is already on track to do better than pledged this year.
But things aren't as bright on the revenue side. First, because the recession is hitting the country hard. Second, because the government is struggling to fight one of the country's major problems — the massive fraud that makes paying taxes the exception, instead of the rule. Most western governments tend to think that cutting spending is harder than raising taxes.
It’s just the opposite in Greece. The overall deficit is ahead of target partly because GDP numbers were boosted by inflation, but also because the government cut spending faster than thought. This more than compensated for the actual tax revenue shortfall, which rose only 8.7 per cent this year, much less than the targeted 13.7 per cent.
Protests against spending cuts won’t go much further than strikes or street demonstrations - so the government can go ahead with the plans. But how to make people pay taxes? Athens needs to foster a civic mindset, bring fraudsters and tax evaders back under the rule of law, and crack down hard on repeat offenders. The government is trying. It has forced the use of cash registers and bank accounts on most businesses. It is introducing a tax amnesty - which might help if it is viewed as a genuine last chance for tax evaders to come clean rather than something that will be repeated in a few years. And it is playing tough on corruption - including among tax inspectors. But for that, it must rely on civil servants who have seen their take-home pay cut by some 14 per cent in the last year. Good luck to it.