Greece's public sector operation cost remains high
by Dimitris Rapidis and Alberto Paez
The massive fall in operation cost of the Greek state was in 2010 when the PASOK government signed with the country's creditors the first Memorandum of Understanding (MoU). The program entailed harsh austerity cuts in the public sector that the government should implement in order to avoid default. Since then, public spending was decreasing year by year in a steady yet exhaustive way for the public funds and the labor force. The aim to create a smaller state was achieved by 2013, but the problem still remains: the operation cost of the public sector remains occasionally high.
No further cuts on wages and pensions
The Greek government did increase taxation last August after passing through the Parliament the first two sets of prior actions of the bailout deal. One of the major requirements was to increase public income, thus imposing additional taxation on wages and pensions. Tax hikes without direct wage and pension cuts are not reflected on the state's operation cost, but are counted in the public income account. Therefore, any other direct decrease on wages and pensions would cause deeper harm in the society and the labor force, while at the same time it would make even harder the tax collection process and augment the risk of tax evasion for low and middle-income households.
Costly public enterprises should be addressed
The state should focus on public enterprises that are dysfunctional, unproductive, with excessive personnel that remains stagnated. Only in 2015, the Greek government could save around €2 billions after shutting down a number of such enterprises, transferring and mobilizing the personnel in other sectors where needs are increased.
Three of the major public sectors that vie for additional personnel are: a. public schools; b. hospitals and healthcare units; c. tax registries and offices. Across the country, around 23,000 employees are needed to fill in the ongoing operation gaps in these sectors; therefore, such an internal reform could unleash the workforce and minimize the cost of recruiting additional personnel.
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Dimitris Rapidis is Director at Bridging Europe. Alberto Paez is Policy Analyst at Bridging Europe.
October 29, 2015