Introduction:
In the coming months, our country will experience severe economic uncertainty. After the lifting of the restrictive measures, a period of support for businesses and working people is necessary in order to avoid mass unemployment and enable the economy and businesses, with the end of the pandemic, to gradually move towards a phase of recovery.
With the following proposal, we are seeking a combination of tools so that, on the one hand, the income of working people is supported, and on the other hand, the possibility is given to businesses and the self-employed to maintain their economic activity and not to proceed to mass layoffs of workers.
At the same time, our proposal is based on a combination of sources for securing funding for the state with the major source being the issuing of a government bond, so that the needs for the coming months are covered.
The main focus of our proposal is the covering of a part of the salaries of working people in the private sector and self-employed workers for the critical phase of the first three month period after the economy’s recovery and the provision of facilitating loans for the same purpose.
By creating the preconditions for stabilisation and the gradual recovery of the economy, we will avoid situations that can inflict severe social costs and at the same time we will be able to slowly but surely cover the fiscal costs that this support entails through growth. The additional fiscal costs in times of crisis are not a sign of reckless waste, but on the contrary a responsible policy for supporting the economy so that we won’t be driven into a total collapse.
In the event of no provisions existing for avoiding mass unemployment, the economy will enter into a prolonged recession with extremely negative consequences for citizens, businesses and public finances. AKEL’s proposal aims to enable the economy, in the phase where the restrictions implemented because of the pandemic will be lifted, to recover quickly.
The proposal:
1. No one can know how long the coronavirus crisis will last and how deep the pandemic will be. It will depend on the duration of both the pandemic and the emergency measures. An extension in the time of the suspension of work will mean public finances, but also the economy as a whole, will really face a tough time.
2. In the phase we are going through, the emphasis must be on short-term planning so that people and the economy should be supported immediately. The challenge of the first period must be that as a country we can move towards the second stage, namely towards stabilisation when the pandemic and emergency measures are over, on the best possible terms.
The goal must be quite clear. Working people should continue to have an income, businesses should have incentives to cover operating costs in the short term, and the state should be able to fund its needs.
3. At this stage the assessment is that a period of three months after the gradual suspension of the restrictive measures is the minimum timeframe of an overall package for the economy and should be costed based on the average terms. Costing will help calculate the state’s funding needs and the formulation of measures to cover the needs. In this way, the weakness of the support package that was approved (by the House of Representatives), which as regards the aspect of funding support has a limited timeframe of one month, will be overcome.
4. The first priority remains the protection of the public health system. Without a public health system any discussion on the economy is meaningless.
5. At the same time, however, the economy must be supported immediately and dynamically so that it doesn’t paralyse completely. The economy’s recovery is difficult and time consuming, which is precisely why it needs dynamic and immediate support.
6. Challenges: According to the above, the following challenges arise, which must be answered:
• Where will the State find resources from?
• What additional incentives can the State have to continue to be sustainable?
• What incentives will be provided to companies to maintain their labour force and not suspend their work altogether?
• What schemes can support working people’s income?
7. Regarding companies, the basic costs they have to deal with are three:
• the payroll,
• rents,
• the cost of servicing their loan.
Their main priority should be to keep jobs. As long as wages are supported and given that borrowing is suspended (those who managed to do so and those who are included in the loan suspension scheme), the problem of paying rents remains which must be solved.
8. Support for households and working people: In the period ahead, households and working people (wages) must be decisively supported. The priority is for workers to stay in the economy rather than the state providing unemployment benefits (the weakness of the government’s current one-month subsidy policy is that it is not a satisfactory incentive for many companies to maintain their business. Many already have chosen to suspend their work and subsequently those that will suspend them might be even more and as a result many workers will be driven to unemployment).
9. State policy must be based on a combination of policies:
• Financing the economy,
• Support for working people and businesses,
• Reducing expenditures/expenses of households and businesses.
• Covering part of the increased private debt with interest rate subsidy for a limited period of time and in a targeted manner so that difficulties that are created in the current conditions are addressed.
10. The government’s bill on state guarantees is unsuitable and cannot meet needs. Objectively, it cannot fulfill its declared goals, it will foster corruption, intensify the arbitrariness of the banks given that they will be the ones that will decide about the loans and will lead to a waste of valuable resources. Businesses are looking for liquidity and borrowing so that they can invest or expand their turnover. The current economic conditions do not permit many companies to fully cover their operating costs and wages through additional borrowing.
The State’s responsibility to support the economy cannot be turned into an obligation of households and businesses for increasing borrowing from the banks.
11. Finding resources by the state:
In such conditions, a combination of measures is needed due to the magnitude and volume of the crisis:
a) The basic idea is for the state to issue a bond, which it should make available to the banks. There are two approaches on this matter:
• The state should borrow an amount with a short-term bond (a few months) to meet immediate needs and then, at the end of the emergency situation, to borrow through a 10-year bond for additional support to the economy and society.
• b) The state should proceed directly to a loan with a 10-year bond and allocate the revenues in a targeted way on the basis of a scheme.
b) Internal borrowing of the state from other sources (for example, Provident Funds or banks). The amounts here will be smaller so that they’ll be allocated for specific purposes.
c) We do not rule out the possibility that the state will proceed to issue state guarantees for securing liquidity from the banks, but for a smaller amount however than what the government proposal provides for (for example, 500 million Euros) and with stricter terms, criteria and control to really support SME’s and not with the risk of the banks squandering money.
d) The government must assert support from the EU in the face of the situation that is prevailing globally and especially in Europe. The sizes are such that no economy can take on the burden on its own.
e) In addition, Community programs concerning the funding of SME’s or social cohesion must also be used.
Borrowing by the Government will be used to support businesses and self-employed workers as follows:
a. Extension of existing employment support schemes until 30th April.
b. 40% subsidy of the monthly payroll of companies with a maximum subsidy rate per worker/employee of up to 1,600 Euros which was approximately the amount of the median salary before the pandemic for the period 1/5 – 31/7/2020. (It must of course be safeguarded that all working people will be able to have the necessities for their livelihood with the elaboration of additional specific targeted social policy measures as a complementary tool).
In the case of self-employed workers, there will be a subsidy of their own earnings too in addition to their employees, either on the basis of their latest tax returns or on the basis of some fixed amount.
At the end of this period, there should be a re-evaluation of the given facts based on the situation that will evolve in the economy in order to assess the expansion – amendment – abolition of the schemes. The cost of these schemes, given that they will cover 260,000 employees and self-employed people who are covered by the existing schemes for three months, is estimated at around 400 million Euros.
c. Monthly temporary loan of up to 40% of the monthly payroll of companies (with a maximum salary limit – possibly – at € 39,000) for the period 1/8 – 31/12/2020. The 40% lending will be done easily and simply every month through the Social Insurance Fund (TKA). That is to say, with the submission of the monthly salary by the business to the TKA, the corresponding transfers to the businesses will be made immediately. In the case of self-employed persons, once the amount of the subsidy has been decided, the return will be transferred to their accounts in the same manner.
The total amount of the temporary loan that will be accumulated on 12/31/2020 will be converted into a six-year loan from the state with an interest rate of 0.75% payable in 72 fixed monthly installments. The monthly installments will be added to the amount paid by employers and self-employed employees to the TKA.
(There are some alternative solutions that we can discuss for the collection of the loans).
Notes:
• The dates of each phase are indicative and subject to change depending on how developments in the economy and public health will evolve.
• How the transition from one period to another will take place can be decided accordingly based on the economic capabilities of the state and conditions. Either the first period should be completed and then move on to the second, or both periods may overlap. The same can apply for the amount of support that will be given by the state, which, however, to operate as an incentive it cannot be below the percentage we point out.
Indispensable precondition: For as long as the subsidies/loans are in force, companies and self-employed workers shall undertake a commitment not to lay off staff.
This proposal could cover all the sectors of the economy except for a few exceptions, such as the Tourism sector, which will need a more specialised proposal adapted to this sector’s needs.
The promotion of domestic tourism through specific packages and schemes for working people and other groups of the population (there is a relevant experience that can be drawn from the pensioner’s and working people’s Schemes) can constitute an essential measure for tourism. Domestic tourism may not be able to make up the losses, but it can provide sighs of relief.
12. Additional measures for the Economy:
(a) Rents: In addition to the above proposals, a bill must also follow for a temporary reduction of rents for both professional purposes, as well as for households. This would provide a further easing of the operating costs of business. The reduction of rents can also occur with the contribution of the state, tenants and owners (AKEL has submitted a relevant proposal).
(b) Wealth tax: In these conditions, the contribution of all must be done according to their capabilities. Therefore, the State can increase its revenues by increasing the burden on those with the most potential possibility to undertake it.