Tuesday, February 16, 2010

On Greek Tax Evasion in the GUE

I pointed out yesterday that Greece has one of the largest free operating business zones in the world, that is, the Greek Underground Economy is a significant untaxed, unregulated sector, that runs quite smoothly. The sector that is in trouble is the government sector. International meddlers, including the IMF, see GUE and are drooling. They want to gain control of that cash flow and direct a chunk of it into the government sector, which will then find its way into the pockets of the international bankers.

Bloomberg today has a decent profile on the GUE, but naturally presents it from the viewpoint of the meddlers who want to control it. Ignore the big government spin, absorb the facts, and you will understand why the average Greek on the street is about as concerned about the Greek government debt crisis as is the average German on the street:
Apostolis Rigas took his Opel sedan for a 220-euro ($354) service at a repair shop in northern Athens. When he asked for a receipt, the price jumped to 260 euros as his mechanic would have to declare the income and pay tax.

“There’s no taboo about this,” the 23-year-old student said in a Feb. 2 interview. “Tax evasion helps support families, but it’s not good for the Greek state.”

Prime Minister George Papandreou’s drive to tackle the European Union’s biggest budget deficit and pacify investors who have dumped Greek assets may hinge on convincing more people like Rigas to abandon this tax-dodging tradition. Papandreou says that Greek workers and companies have skirted tax worth 31 billion euros, more than 10 percent of gross domestic product.

Greece’s revenue from income tax was 4.7 percent of GDP in 2007, compared with an EU average of 8 percent, EU statistics show. Tax revenue fell by 2.5 percentage points of GDP between 2000 and 2007 to a euro region-low of 32 percent even as economic growth averaged 4.1 percent a year.

That decline has helped push the deficit to 12.7 percent of GDP, more than four times the EU limit. It has also inflated the national debt, which at 120 percent of GDP will be the highest in the euro region this year...

“If these practices continue, they will lead to much bigger problems for us all,” Papandreou said in Brussels on Feb. 11 after EU leaders agreed to offer aid if Greece sticks to the deficit goals.

The government is seeking to tap more revenue from a society in which 95 percent of taxpayers declare annual income of less than 30,000 euros. The Bank of Greece estimates a campaign against evasion and corruption could glean as much as 5 billion euros a year.

“What distinguishes Greece from the rest of the pack is the extent of tax evasion,” said Michael Massourakis, chief economist at Athens-based Alpha Bank, the country’s third biggest-lender, in a Feb. 5 telephone interview. “If you don’t attack tax evasion you don’t have the moral authority to cut spending.”...

The government has started scrutinizing professionals suspected of widespread evasion. An investigation in the central Athens neighborhood of Kolonaki, where shoppers can buy Manolo Blahnik shoes and find the city’s only Prada store, showed more than half of doctors declared less than 30,000 euros in annual income, Finance Minister George Papaconstantinou said in November...

Still, Papandreou’s campaign against evasion comes as he cuts public wages and services, and risks fueling mistrust of government corruption and inefficiency that helps many justify dodging the tax man, said Evangelos Karaindros, 41, a self- employed lawyer based in downtown Athens.

“I pay taxes, but I don’t get any services,” he said in a Feb. 1 interview. “The man on the street feels this country offers him nothing.”

That anger taps into a tradition of tax evasion-as-protest against nearly four centuries of rule by the Ottoman Turks that ended with Greek independence in 1829, Massourakis said. Even for those who pay, colluding with tax-dodging of taxi drivers and bar-owners is still considered a form of solidarity.

“If this was a friend of mine he wouldn’t give me a receipt and I wouldn’t ask,” Rigas said. “I’m not so sure they’ll succeed.”
The only thing that a serious crackdown on tax evasion in Greece will do is create massive civil unrest.

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