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IMF Thomsen: competitiveness not enough, small businesses limit growth opportunities, no tax reductions

Don’t get fooled by the IMF review officially admitting grave mistakes in the application of austerity program in Greece> Nothing will change in the fiscal adjustment program demanding the last euro drop even from the poor: the review urges the Greek government to stick to the implementation of the ‘wrong program’ and demands among others higher lay-offs in the public sector, lifting the ban of evictions for first home as of August 2013.

Austerity program highlights

Head of Greek program, Poul Thomsen already outlined the direction Greece has to keep track with. further reforms are needed to restore growth and reduce unemployment.

Competitiveness is not enough meaning, wages still need to be further lowered

“Competitiveness has also improved. There is still a competitiveness gap, but it’s been substantially reduced.”

Reduce unemployment: fire public servants, hire private sector jobless to public sector, continue with the old tradition of  Greek political favoritism and the never-fail trade ‘votes’ for ‘jobs’

“Those in the public sector who are unqualified or low performing have continued to have protected jobs, making it more difficult to improve the quality of public services and hire better qualified workers from the large ranks of the unemployed.”

Growth: small businesses  limit growth opportunities.

“The self-employed sector tends to be involved in very small- scale operations that limit growth opportunities.”

Tax reduction? No way unless other forms of state registers filling up

“In our view, the Greek authorities should not consider reducing taxes before there is clear evidence that these reforms are working, although one can, of course, always consider already-agreed fiscal measures, including taxes, with other measures.”

After three years in Greece and three loan agreements, Poul Thomsen still blames the closed professions for putting obstacles to growth and keeping prices high.

“Another example is that many over-the-counter products are allowed to be sold only in pharmacies where there is a guaranteed margin, which keeps prices high for consumers. These products should be available at any store, and pharmacy margins need to be liberalized.”

Dear Poul, do us a favor and allow pharmacies to sell also olive oil, potatoes, meat, poultry, chicken, cheese and parsley. So that broke Greeks will see price reductions not only in vitamins and aspirins but in much needed basic goods as well.

Below an excerpt of the interview where Poul Thomsen had the chance to outline the next highlights of the austerity program:

IMF Survey: What else is needed to restore growth and also bringing back jobs?

Thomsen: The big question is indeed, where growth will come from. This will require flexibility in the economy to be able to reallocate resources from low-productivity to high-productivity activities, to be able to hire workers into higher-productivity jobs. Key to achieving this is structural reforms to enhance productivity as well as reforms to tax and public administration.

There have been pervasive restrictions in professions, product markets and services markets, which have limited entry into various sectors and kept prices high. There are restrictions, for example, to become a tourist guide.

Another example is that many over-the-counter products are allowed to be sold only in pharmacies where there is a guaranteed margin, which keeps prices high for consumers. These products should be available at any store, and pharmacy margins need to be liberalized. The authorities have begun to take some steps at lowering entry barriers, but those steps have not yet achieved the desired outcome.

In the area of tax collection, Greece has been successful in raising taxes on those whose salaries are reported by their employers. But there’s a very large self-employed sector, including the wealthy, that has tended to evade its fair share of taxes. The self-employed sector tends to be involved in very small- scale operations that limit growth opportunities. Tax administration reform has begun, but there’s much more to go. The revenue yield from effective tax administration could prevent the need for further, across-the-board spending cuts to meet fiscal targets.

Another very important area where Greece needs to make improvements is on reforming the public sector to reduce costs and improve efficiency. There have been no mandatory dismissals yet in the public sector, despite widespread job losses in the private sector. Those in the public sector who are unqualified or low performing have continued to have protected jobs, making it more difficult to improve the quality of public services and hire better qualified workers from the large ranks of the unemployed.

Reforms in each of these key areas should make resource allocation more efficient and increase productivity. They would also result in a more equitable distribution of the burden of adjustment, thus increasing public support for the authorities’ program.

MF Survey: Given that Greece has made progress in consolidating its fiscal position, do you think that there’s any space to relax its tax or spending policies?

Thomsen: Greece is well on its way to completing its fiscal consolidation, but it still has some way to go. In this regard, much of the fiscal adjustment in 2014 is assumed to come from reforms that are clearly still running behind, notably reforms to improve tax collections and to modernize the public sector, including making room to hire new talent by being more willing to layoff those who do not perform.

In our view, the Greek authorities should not consider reducing taxes before there is clear evidence that these reforms are working, although one can, of course, always consider already-agreed fiscal measures, including taxes, with other measures. (full interview here)

Thomsen + investors = odd?

During his press conference on Wednesday evening, Poul Thomsen said something very odd:

But when I talk to investors, the high debt in itself is not so much a concern, as far as I can see right now. So, it is really a question of continued commitment to policies on the part of Greece, but the people are concerned about [inaudible], and I think good implementation is also going to be good for sentiment.” [blahblahblah…]

Question: Does OUR Poul Thomsen gives advice to private investors? Is that the reason why he sees small businesses as obstacle to growth? the private big investors he shares a coffee, a lunch and some advices?

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