The shape of the Greek public sector was already established in the nineteenth century. From the inception of the modern Greek state, provision of public-sector jobs was a preferred way for politicians to grant favors (see The Civil Service , ch. 4). Publicsector jobs also provided opportunities for upward mobility in an economy whose development potential was unrealized until a very late stage. Beginning about 1974, several factors have contributed to growth of the public sector. Greek governments responded to the economic crisis of the 1970s with a variety of policies that increased government spending in order to protect the public from the consequences of the economic downturn. This response was intensified by the need for democratic consolidation when the military dictatorship ended in 1974. It was enhanced further in 1981 when the first socialist government in Greek history brought with it a programmatic goal to modernize the Greek system of social protection.

Beginning with the socialist administrations of the 1980s, public-sector growth has been the subject of intense political debate. The center of that debate is the appropriate percentage of GDP that public expenditure should occupy. After remaining at about 25 percent of GDP in the late 1960s and early 1970s, public expenditure began climbing after the mid-1970s; by 1980 it had reached 30 percent, then by 1985 it exceeded 40 percent. For the years 1990-93, the figure remained steady between 42 and 45 percent of GDP (see table 6, Appendix).

The basic components of this accelerating outlay are primary expenditures such as the purchase of goods and services, pensions, subsidies, and interest payments on the public debt. Because of the accumulation of public debt on large deficits that have persisted since the late 1970s, between 1980 and 1992 interest expenses grew quite rapidly from less than 2 percent of GDP in 1980 to 11.4 percent of GDP in 1992. On the other hand, since the late 1980s primary expenditures have stabilized at between 35 and 38 percent of GDP. Thus, about half of apparent growth in the public sector, as compared with GDP, comes from the Greek state's bulging interest expenses. About 75 percent of this interest expense is service of domestic debt, held by Greek residents and denominated in drachmas (for value of the drachma--see Glossary). Thus, this expenditure is a transfer payment within the country, from taxpayers to the creditors of the state, through the mediation of the state.

Primary expenditures, have risen mainly in the category of social transfer payments such as pensions, welfare payments, subsidies to social security organizations, and supports to failing firms that were justified in the name of maintaining employment and labor income.

On the other side of the ledger, public revenues have grown significantly over the last two decades. From about 22 percent of GDP in 1970, they had risen to almost 33 percent by 1992. That year, according to the National Statistical Service, primary expenditures were nearly 36 percent of GDP, so had there been no public debt, the Greek budget would have been close to balance.

The problem of enhancing public revenues is paramount for Greece's fiscal future. Contrary to the practice in most European countries, Greek tax revenues come primarily from indirect taxation (sales, excise, and mainly, value-added taxes), and only secondarily from direct taxation (income, corporate profit, and property taxes). In 1992 corporate and individual income taxes contributed about 17 percent of total tax revenues, social security contributions added another 28 percent, and indirect taxes on goods and services amounted to 45.5 percent of tax income. The largest component of indirect tax revenues is the value-added tax (VAT--see glossary), which was instituted in 1987 to comply with the tax harmonization policies of the EC.

The low yield of direct taxation in Greece is not the outcome of low tax rates. Rather, it is due to low income tax compliance. Tax enforcement is problematic in a country with a high percentage of self-employed workers and a large service sector. For many years, salaried employees and pensioners have paid the largest share of direct taxes, when in fact these categories of the working population are not the wealthiest or the most able to shoulder the tax burden. In addition, Greek tax collection is riddled with inefficiency, lax enforcement, and even corruption--factors that have survived numerous reform efforts.

A new set of tax reforms was passed in 1994 to broaden the tax base and make the tax burden more equitable. The top income tax rate was cut to encourage those with higher incomes to participate. A "profession tax" now sets a minimum taxable income for every member in prescribed levels of each profession, and tax inspectors can examine personal financial records to establish tax liability.

Aside from the government and its agencies, the Greek public sector includes a variety of enterprises in various sectors of the economy. Some of these concerns enjoy monopoly status, such as the Public Power Corporation (Dimosia Epicheirisi Ilektrismou--DEI), the Greek Telecommunications Organization (Organismos Tilepikoinonion Ellados--OTE), and Olympic Airways, which alone operates domestic air travel. Other public-sector enterprises, most notably national banks and manufacturing companies owned by them, coexist with private firms in their field of activity.

The growth period of the public sector also included extension of public ownership to troubled private firms, usually through state-controlled banks. In the late 1980s, the government began the process of privatizing or liquidating these firms. In the early 1990s, minority blocks of shares were issued to privatize in part two large public utilities, DEI and OTE--although the cancellation of an open bidding process on the shares of the latter in 1994 signaled a possible reversal of such privatization plans. In addition, the monopoly status of several public enterprises is undergoing gradual change. Competition in domestic air travel, alternative forms of energy generation by private agents, and mobile telephone communications are examples of activities in which private entry has already begun or is being considered in the mid1990s .

Virtually all current observers of the Greek economy agree that the public sector must be streamlined if the country is to experience a new round of development. Because many of the mid1990s problems of the public sector result from earlier crises in private companies that were inherited by the state, the prescription for long-term improvement includes private-sector assistance in the cleanup of public-sector problems. This requirement means that the Greek political agenda will continue to include effective tax reform and an end to subsidies for many types of private enterprise.

Data as of December 1994

NOTE: The information regarding Greece on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Greece The Public Sector and Taxation information contained here. All suggestions for corrections of any errors about Greece The Public Sector and Taxation should be addressed to the Library of Congress and the CIA.