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2007 OECD Economic Surveys: Greece 2007

image of OECD Economic Surveys: Greece 2007

This edition of OECD's periodic survey of Greece examines recent economic performance and key challenges including fiscal consolidation, reform of pensions, easing entry into the labour market, improving tertiary education, and fostering competition in network industries.

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The gains from prompt fiscal consolidation

A major achievement has been the reduction in the fiscal deficit since 2004 by over 5% of GDP to below the 3% limit in 2006. The government plans a more gradual reduction over coming years so that overall balance or surplus is reached no later than 2012. However, fiscal consolidation should continue, possibly at a more rapid pace than planned given the high level of government debt, favourable outlook for output growth, and long-term fiscal costs of ageing which are estimated to be among the largest in the OECD. There are as yet no specific proposals to reform pensions, which account for most of the prospective ageing-related increase in public expenditure, although the government is expected to announce reforms later this year. Delaying fiscal consolidation, particularly the urgently needed pension reform, would have substantial longer-term costs in terms of higher taxes and additional debt service costs, including an increase in the risk premium paid on government debt. In addition, this would heavily skew the tax burden towards future generations. Consolidation should focus on reducing primary spending and on enhancing tax revenues. This can be achieved particularly through increased efficiency of public administration and by tackling tax evasion and other measures to further broaden the tax base. Ensuring long-run fiscal sustainability will further require the implementation of wide-ranging reforms in the key area of health care, as well as an early decision to introduce a comprehensive reform of the pension system.

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