Tax hikes is no longer a safe policy to increase public income
by Dimitris Rapidis and Alberto Paez
Greek taxpayers are exhausted. After five years of continuous tax hikes household capacity is weakening and the state receives less money year by year. The once safe policy of covering deficit with more taxes seems to have reached an end due to a number of reasons connected with recession, the decrease of spending power, unemployment, the narrowing of the taxation basis, tax evasion.
For a fifth consecutive year public income is decreasing. The overall loss since 2010 is expected to reach €8.1 billion this year whereas the household income is squeezed down to €38.4 billion. In other words, the state counts big losses thus broadening a vicious circle affecting areas like public spending, protection of lower incomes, provision of essential safety nets to most vulnerable parts of the society.
The Greek economy is not growing and therefore it is asphyxiating. More taxes and lower loans added to a stagnated market is a recipe designed to fail. Tax evasion is not efficiently addressed mostly because the institutional framework in Eurozone and the slowing down of procedures towards the banking union further impede the efforts of the current government. The previous governments and the state mechanisms did absolutely nothing since 2010 to warm up the engines and look after scandalous cases of tax evasion. The problem gets bigger when connected with public spending and the figures showing that the state has a long way to go and should further cut the cost of unproductive public organizations. Form shutting down a number of such public entities the state could save around €2 billion (see more here).
The Greek government is faced with three big challenges towards preparing the annual budget draft: a. the resolution of non-performing loans on primary residencies; b. the recapitalization of the systemic banks; c. the pension reform. During the last couple of weeks (and for the next two) high-ranked EU officials have visited and will be visiting Athens to exert pressure on the implementation of the program. PM Tsipras has a difficult and demanding puzzle to solve.
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Dimitris Rapidis is Director at Bridging Europe. Alberto Paez is Policy Analyst at Bridging Europe.
November 4, 2015