Tax burden on Greeks Rises Dramatically, Says New Report

Fosphotos/Panayiotis Tzamaros (PressProject) - The government cannot expect to increase revenue through further tax increases according to a new report issued by the Parliamentary Budget Office. The tax burden in Greece has risen dramatically in recent years and now is one of the highest in Europe. Meanwhile wages have dropped and unemployment has skyrocketed casting doubt over the economic recovery.

The report focuses on the three month period of October - December 2013 and analyzes Greece’s performance with regards to its fiscal targets. It was submitted by the Budget Office’s chief, the economics professor Panagiotis Liargkovas, to the Speaker of the Greek parliament Evangelos Meimarakis.

According to the analysis performed by the Budget Office economists, further increases in taxes, “would not involve increases in tax revenue due to the exhaustion of the capacity for tax payment and the increase in tax evasion.”

As the report highlights, the tax burdens faced by Greeks - most of whom have also seen wages and/or pensions slashed or lost their jobs altogether - have risen to eye-watering levels. Among other points the report notes:

    -The combination of tax rises and reductions in salaries and pensions and the dramatic increase in unemployment has seen the living standards for many Greeks plummet since 2010.
    -The upper limit of the tax coefficient for each income category is in reality 1-4% higher due to the levy of additional ‘emergency solidarity taxes’.
    -Income taxes for pensioners and salaried workers have increased by sevenfold since 2010 whereas the tax paid by freelance workers has increased ninefold.
    -Total property taxes collected have risen seven-fold to 3.5 billion euros from just 500 million in 2009.
    -Since 2010, VAT has been repeatedly increased in ten different market segments.
    -Road taxes and fuel taxes were raised twice, electricity and natural gas use also became subject to taxation for the first time. Meanwhile harmonization of the tax on heating oil with that on fuel saw the former increase by 450%.

As a result, in contrast with what is commonly believed through much of Europe about the Greeks, they are now only of the most heavily taxed peoples in Europe, with taxation levels well above the averages both in the 17-state Eurozone and the EU as a whole.

At the same time, however, the Budget Office notes that the tax increases, while sowing social misery, have partially achieved their stated goals. Greece no longer has the largest deficits in the Eurozone and has improved its relative standing on all significant economic indicators. The Budget Office states in its report that this achievement should not be underestimated and that it has helped reduced the climate of economic uncertainty and bolstered Greece’s position within the eurozone.

However this may be of cold comfort to the taxpayers who have borne the brunt of the reforms. As the report also makes clear, balancing the budget is only one pillar of the rescue plan to save Greece, the other being the structural reforms intended to make the economy more competitive, for which progress has been painfully slow. Efforts to streamline bureaucracy, create a better and more efficient business environment and improve access to justice and education, while reducing corruption and large-scale tax evasion are described as grossly insufficient and disjointed.

In particular the report notes the only measure effectively taken to reduce the cost of products and services within the country was reducing the cost of labour through wage reductions and labour reforms. As a result, prices barely dropped while consumer buying power was greatly reduced, thus reducing living conditions dramatically.

While Greece’s fiscal situation may have been stabilized, at the same time the potential for an economic revival has been reduced, with income inequality and unemployment now at record levels. This, the report notes, could prove dangerous for the country’s future.

Despite Greece’s improved fiscal situation, the report also makes clear that the Budget Office does not see Greece’s debt as currently sustainable (currently over 170% of GDP), believing that a European-level debt restructuring will be required. Doubt is also cast on the prospect of Greece returning to borrowing from the markets anytime soon (as Antonis Samaras confidently predicted at the beginning of the year). According to the report “there is some logic to this, however it will place an additional burden on public finances for one simple reason: the interest rates will be significantly higher than those which we could secure from the European Stability Mechanism (ESM)”.

In short for all its progress, economic recovery remains a far off prospect and taxpayers are no longer in a position to fill the government’s funding gaps. The government’s only options are are growth promoting market reforms and (particularly) further assistance from Greece’s lenders. As the report (not too subtly) concludes “Greek policies must take into account the developments in the EU and the Eurozone which establish to an ever greater degree the framework in which the national government can maneuver.”

Sources:
In.gr (link in Greek)http://news.in.gr/economy/article/?aid=1231290923