The fiscal crisis and the social wage in Southern Europe Focus on Greece Compare the fiscal structure of Greece, Spain, Portugal, Italy, France and EU-15 for 1995-2009 Class aspects of fiscal crisis: Estimate the net social wage (ratio) in Greece and other Southern European countries (Are workers/social policy responsible for the recent economic crisis, the public deficits and the accumulation of public debt in recent years?) Is there a distinct “Southern European welfare state model”?

Expenditures- Revenues – Deficit (1995-2009) Public expenditures, taxes and budget deficits as a percentage of GDP in Greece and EU15 (1995-2009) Expenditures- Revenues – Deficit (1995-2009) EU15 GREECE DIF 1. Government expenditures / GDP 47.7 45.9 -1.8 2. Government revenues / GDP 45.1 39.4 -5.7 3. Budget deficit / GDP -2.6 -6.5 +3.9 Public expenditures / GDP (1995-2008) 4. Government employee compensation/ GDP 10.8 11.0 --- 5. Education expenditures as a percentage of GDP 5.2 2.9 -2.3 6. Health expenditures as a percentage of GDP 6.4 4.4 -2.0 7. Social protection expenditures / GDP 18.8 17.2 -1.6 8. Interest payments / GDP 3.6 6.7 +3.1 9. General public expenditures / GDP 7.1 10.6 +3.5 10. Defense expenditures / GDP 1.6 2.6 +1.0

Expenditures-Revenues–Deficit (1995-2009) Public expenditures, taxes and budget deficits as a percentage of GDP in Greece and EU15 (1995-2009) (continued) EU15 GREECE DIF Expenditures-Revenues–Deficit (1995-2009) 1. Government expenditures / GDP 47.7 45.9 -1.8 2. Government revenues / GDP 45.1 39.4 -5.7 3. Budget deficit / GDP -2.6 -6.5 +3.9 Taxation / GDP (1995-2008) 11. Total receipts from taxes and social contributions/GDP 41.3 34.1 -7.2 12. Total tax receipts/ GDP 27.2 21.2 -6.0 13. Total (actual and imputed) social contributions /GDP 14.3 12.9 -1.4 14. Current taxes on income, wealth, etc./ GDP 13.2 8.0 -5.2 15. Taxes on income / GDP 12.3 7.6 -4.7 16. Taxes on individual or household income including holding gains / GDP 9.7 4.5 17. Taxes on the income or profits of corporations including holding gains / GDP n.a. 2.9 ---- 18. Taxes on production and imports / GDP 13.7 13.0 -0.7

State revenues much lower (6.0%) Summary of the fiscal structure comparison between Greece and EU-15 1995-2009 Greek public expenditures slightly less (1.8%) than in EU-15 on average State revenues much lower (6.0%) Hence, average annual public deficits (6.5%) in Greece Wages of state workers the same as in EU “Welfare state” spending (health, education, social security) less in Greece Defense, general services, interest (= annual deficit) much higher in Greece Taxes on income (of non-workers) and tax rates on profits of corporations much less in Greece

Public Education expenditures/GDP Greece and EU-15 1995-2008

Public health expenditures as a percentage of GDP, Greece and EU-15, 1995-2008

Corporate taxes/GDP average 1995-2008 selected EU countries

Expenditures- Revenues – Deficit Public expenditures, taxes and budget deficits as a percentage of GDP in France Spain Portugal Italy and EU15 (1995-2009) Expenditures- Revenues – Deficit EU15 Portugal Italy Spain France 1. Government expenditures / GDP 47.7 43.1 49.1 40.5 53.2 2. Government revenues / GDP 45.1 39.1 45.5 38.3 49.9 3. Budget deficit / GDP -2.6 -4.1 -3.5 -2.2 -3.3 Public expend/GDP (1995-2008) 4. Government employee compensation 10.8 13.0 10.9 10.5 13.3 5. Education expenditures 5.2 6.8 4.7 4.4 6.3 6. Health expenditures 6.4 6.5 6.2 5.4 7.5 7. Social protection expenditures 18.8 14.0 18.0 13.4 21.4 8. Interest payments 3.6 3.2 6.6 3.0 9. General public expenditures 7.1 10.3 5.7 7.6 10. Defense expenditures 1.6 1.4 1.2 2.1

Table 1: Public expenditures, taxes and budget deficits as a percentage of GDP in France Spain Portugal Italy and EU15 (1995-2009) (continued) EU15 Portugal Italy Spain France Taxation / GDP (1995-2008) 11. Total receipts from taxes and social contributions 41.3 35.3 41.9 34.9 45.4 12. Total tax receipts 27.2 23.7 28.9 22.5 27.1 13. Total (actual and imputed) social contributions 14.3 11.6 13.1 12.9 18.5 14. Current taxes on income, wealth, etc. 13.2 9.1 14.4 10.5 10.9 15. Taxes on income 12.3 8.8 13.9 10.2 9.9 16. Taxes on individual or household income including holding gains 9.7 5.5 7.0 7.4 17. Taxes on the income or profits of corporations including holding gains n.a. 3.2 2.9 3.1 2.5 18. Taxes on production and imports 13.7 14.6 14.2 15.8

Fiscal structure Greece, Portugal and Spain spend less than the EU average, Italy more, France much more Greece, Portugal and Spain collect much less than the EU average in revenues, Italy the average, France much more Inadequate state revenues the reason for public deficits in Greece, Portugal and Spain Greece, Portugal and Spain lag behind European averages for total and almost all individual tax categories, and Italy is close to those averages. Taxation in France is based heavily on indirect taxes (which offset the lighter taxation on household income and profits bringing tax revenues equal to the EU average) and much higher than average social security contributions France spends more for wages of public workers, social security and social welfare, Greece and Italy spend more for interest on public debt

Examine if net social wage is positive or negative and its impact on Net social wage as the indicator of the class character of the state budget Radical/Marxist Political economy: Who pays for social spending (directed at workers?) a) Workers themselves b) capital (profits) or c) public budget deficits? Examine if net social wage is positive or negative and its impact on labor discipline productivity (post fiscal) distribution – profitability – accumulation of capital and growth Mainstream economics: “welfare programs may lead to cumulative deficits and mounting public debts” (Dreze and Malinvaud, 1994, p. 95)

Table 5: Net Social Wage Definitions ==================================================== Net Social Wage = Labor Benefits – Labor Taxes nsw = lb – lt Benefit Ratio = Labor Benefits / GDP Lbr = lb / GDP (ec) Tax Ratio = Labor Taxes / GDP Ltr = lt /GDP (ec) Net Social Wage Ratio = Net Social Wage / GDP or = Net Social Wage / Employee Compensation nswr = nsw / GDP = Lbr - Ltr or nswr = nsw / ec =================================================

Allocation of benefits from state expenditures to workers Categories of Public expenditures classified by economic function Labor benefits Α. Public Consumption 1. General Public Services --- 2. Defense 3. Public Order and Safety 4. Education Labor Share = workers/total employment 5. Health Labor Share 6. Social Security and Welfare 7. Housing and Community Services 8. Recreation, Culture and Religion 9. Economic Services 10. Other Functions

Allocation of benefits from state expenditures to workers (cont’d) B. Subsidies Subsidies to firms ------- C. Current transfers to households 1. Pensions 100% or Labor share 2. Unemployment Compensation 100% 3. Family allowances 4. Sickness allowances 5. Welfare transfers D. Public Investment 1. General Public services ----- 2. Defense 3. Housing Labor share Ε. Property income paid ---- 1.Interest 2. Rent

Allocation of taxes to wage laborers Tax Categories Labor taxes 1. Personal Income Tax Labor Share 2. Local Government Taxes 3. Corporate Income Taxes --- 4. Social Security Contributions (of workers) 100% (or L.S.) 5. Payroll Taxes 100% 6. Property Taxes 7.Capital taxes 8. Indirect Business Taxes (Consumption Taxes)* Labor Share = wages / personal consumption 9.Other Taxes

Labor benefit ratio and labor tax ratio

The net social wage ratio (nswr) in Greece, 1995-2008

The net social wage ratio (nswr) in Greece, 1958-1995

Public Debt / GDP

Public Deficits / GDP

Public Debt / Public Revenues

Labor Benefit ratios

Labor Tax ratios

Net social wage ratios

Lbr – Ltr = nswr Labor benefit ratio 0.160 0.231 0.236 0.245 0.357 Greece Spain Portugal Italy France Labor benefit ratio 0.160 0.231 0.236 0.245 0.357 Labor tax ratio 0.223 0.265 0.260 0.304 0.380 Net social wage ratio -0.063 -0.034 -0.024 -0.059 -0.022

Net social wage ratio in selected countries Country Average Net social wage ratio (nsw/GDP) USA (1952-1997) -0.067 UK (1970-1990) -0.024 New Zealand (1949-1975) -0.016 Canada (1955-1988) 0.000 France -0.022 Italy -0.059 Portugal Spain -0.034 Greece (1958-1995) -0.064 Greece (1995-2008) -0.063

(Public deficit – net tax on labor) / GDP Average values for net social wage ratio, budget deficit and interest paid on public debt as a percentage of GDP, 1995-2008 Greece Spain France Italy Portugal Public deficit/GDP -0.065 -0.022 -0.033 -0.035 -0.041 Interest paid/GDP 0.067 0.030 0.066 0.032 Net social wage ratio -0.063 -0.034 -0.059 -0.024 (Public deficit – net tax on labor) / GDP -0.128 -0.056 -0.055 -0.094

+ - Wage share Net social (a) + + (b) + - wage rate = (nsw / gdp) Changes in the net social wage ratio = (nsw / gdp) and in the wage share = (w / gdp) Wage share = (w / gdp) + - Net social (a) + + (b) + - wage rate = (nsw / gdp) (c) - + (d) - -

net social wage ratio and wage share, Greece 1995-2008

Public debt/GDP Greece 1960-2010