Can Greece Improve its Tax Morale?

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One of the reasons Greece has had such a difficult time raising revenue is because tax evasion is sort of their national pastime.

In Greece the “tax gap” (the difference between what should be paid by taxpayers and what actually gets paid) is about 1/3 of total tax revenue. About 28% of all business in Greece is conducted outside of the tax system (“under the table”). And the cost of tracking down so many tax cheats is astronomical. All other factors being equal, Greece spends 4 times what the US spends on tax collection efforts.

One author believes that this culture of tax evasion is the result of poor enforcement practices and low “tax morale.” See The New Yorker article “Dodger Mania” by James Surowiecki.

Enforcement

  • tax collectors in Greece frequently accept bribes
  • tax laws have too many loopholes and are not applied fairly
  • even when tax cheats are caught, justice comes very slowly in backlogged tax courts

Tax Morale

  • the people of Greece doubt their government will spend the tax revenues judiciously
  • since the rich and prominent members of society avoid paying taxes, the burden falls on those who can afford it least
  • citizens in any country tend to pay if they see others paying, but if they see others cheating then the tendency is to cheat (paying taxes seems to be a social animal)

It’s easy to see how these problems are related. Low tax morale leads to difficulties with enforcement, and enforcement problems lead to poor tax morale. The morale issues will probably work themselves out over time as long as Greece really cracks down on enforcement. Maybe they should start putting away famous tax evaders like the IRS has done here; that would send a strong message.

A Tax Even the Wealthy Can’t Pay

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Greek parliament approved the new controversial property tax Tuesday evening. The hope is that this will increase the country’s chances of obtaining further bail-out money, precisely 8 billion euros, and keep the country solvent. However, the government has to be willing to exchange solvency for turmoil and unrest. Experts believe this is the wrong approach, and what the people of Greece really need is tax relief and drastic trimming of the public sector.

The property tax will be devastating to normal citizens; many will not be able to pay. However, even more telling is the effect it may have on wealthy government officials. If they can’t pay it, then it’s difficult to tell who can.

I believe that the tax limits of Greek society have been exhausted. I would say they have been exhausted for some time. . . . The property I own was purely obtained through inheritance. Personally, I have never bought anything. . . .  I will be obliged to sell some of these properties. There is nothing else I can do.

~ Theodoros Pangalos, Deputy Prime Minister of Greece

See full story here.

Greece on the Verge of Bankruptcy

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In a conference call earlier today, Greek finance minister, Evangelos Venizelos, spoke with the “troika” — the Commission, the European Central Bank and the International Monetary Fund — with the hopes of convincing them that Greece will be able to pay its debts and should continue to receive financial assistance. The phone call didn’t go as well as Greece had hoped it would. But then again, the door has not completely closed for them either.  A follow-up call is scheduled for tomorrow.

It is still unclear whether or not the country is going to get another installment from its current assistance package. Without it, Greece is expected to go bankrupt by mid October. Stocks took quite a hit around the world today as a result of this news.

Greece Increases Already Burdensome Property Tax

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The new property tax announced by the finance ministry of Greece over the weekend was like a knife in the chest of struggling homeowners.  Now, with tax relief nowhere in sight, the government is doing a little knife twisting.

Just a few days after the tax was announced at the rate of 10 euros per square meter, the government further increased the tax rate to 16 euros. And the nifty thing about having the tax paid through the property owner’s power bill is, if the tax is not paid, then the lights get switched off.  Full story here.

New Greek Property Tax to be Collected by Power Company

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Just a quick update on Greece’s financial crisis as it is related to taxes this time.  On Sunday the government of Greece approved a new property tax aimed at quickly raising 2 billion euros to help plug some serious budget holes.  So the tax collectors got right to work on this, right?  Nope.  In fact, tax offices around the country were shut down today as workers protested pay cuts.  However, even if tax collectors never go back to work, property owners should not expect any automatic tax relief because the new tax is to be collected through electricity bills.

It’s an open question whether or not the tax will actually be collected amid union protests and the country’s rampant tax evasion.  The government needs to get over its credibility issues by cracking down on prominent individuals and businesses that believe they are above the law and immune to taxation.  Lasting solutions for this country’s economic troubles probably involve reducing the public sector and moving towards privatization, whereas the new property tax appears to be just a band-aid.  Worst of all, experts believe that the new property tax will only worsen the country’s recession.