The popular discontent of the last few months is certainly understandable. Although the Greek government spent beyond its means for years, people want their promised benefits, nothing less. What is less understandable is what seems to be a widespread belief among Greeks that the citizens are neither responsible nor have any obligation to bear the consequences for their government overspending and indebtedness over the years.
This line of reasoning is illustrated perfectly by the Greek citizen who was quoted in a newspaper saying: “Why should I pay? I haven’t done anything wrong… Why don’t they go after politicians?”
Many people in Greece – as in Canada and most countries in the Western world – have been accustomed for several decades to receiving transfer payments and other benefits from government as part of their income and to rely on it for financial security. Indeed, a great number of categories of citizens representing either students, elderly, farmers or other groups of producers, have come to see their members as “entitled” to various public welfare programs and benefits, as if the government had the moral obligation to subsidize them. And since politicians are driven by the desire to be elected (or re-elected), they often succumbed to the temptation of promising more social programs to their “supporters.”
That is why public sector employees in Greece are getting 14 monthly payments for about seven months of work during a given year, or why the state railroad company maintains a wage bill that is more than six times the annual income it earns from selling tickets, or why 600 types of professionals – among which radio announcers and hairdressers – can retire and receive a government pension at the age of 50.
What one needs to recognize is that any government can only spend and put in place some social programs to the benefit of some groups by either 1) imposing taxes on them or on others, or by 2) going into debt. Either way, the government has to collect enough revenue in the long run to pay for its expenditures. As money does not grow on trees, there is no way of doing things otherwise.
The problem with taxation though is, to paraphrase Margaret Thatcher, that you eventually run out of other people’s money. Most governments in the West, including ours, have over the years increased their tax rates to the point that they can no longer increase them very much.
Consequently, they have circumvented that problem by turning to a more subtle means of financing their always increasing public expenditures: borrowing. Subtle in the sense that it allows politicians to give the impression that they maintain a generous welfare state, while they simply push the burden of paying for it along to future taxpayers.
Greece may seem to be in a league of its own with its astounding level of public debt that represents around 147 per cent of the country’s production last year. However, all developed countries have seen their level of public debt skyrocket since at least the mid 1970s. According to the latest data, the Canadian gross national debt reached 84 per cent of its gross domestic product (GDP) .
We may have a long way to go before reaching the level of debt of Greece, I agree. But we need not wait until that before realizing what would be the consequences.
The lesson the Greeks are teaching us now is that it is hard to implement needed reforms when a culture of entitlements and state dependency has developed to such extent, even when such system of state support has proved unsustainable. It is a lesson well worth remembering in the future. It may save us from a catastrophe like the one in Greece.
Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute.