For sweet dreams, evasion and avoidance

I wrote an article earlier this week criticizing Christine Lagarde’s comments about Greece. My main objections were that she helped perpetuate the stereotype of all Greeks evading taxes, overlooked the International Monetary Fund’s role in the buildup to the Greek crisis and the way it was handled since 2009, and her belittling of the difficulties that some Greeks are facing due to the deteriorating situation in their country.

I have received a number of interesting responses, the vast majority of which have focused on the issue of tax evasion. Even the most blinkered nationalist or dogmatic ideologue could not fail to see that tax evasion has played a part in the Greek crisis. It undermined public finances and fed the anomie that pervaded much of public life over the past few decades.

However, I have noticed that some people consistently reject all attempts to place tax evasion within any context. It is difficult for them to accept that there are other, perhaps more important, factors — such as an uncompetitive and unproductive economy, an inability to export, a reliance on imports, a flawed euro entry and the selfishness and incompetence of the country’s political class and many of its people — which have led to Greece’s downfall.

Maybe it’s because tax evasion fits the narrative of the crisis that some have constructed for themselves, which sees the unscrupulous Greeks getting what they deserve. This is the salutary tale that some in Europe and beyond can read at bedtime without having to worry that a similar menace will come knocking at their door.

They choose to overlook the myriad factors that have caused this crisis but also turn a blind eye to the truth about tax evasion in Greece, which is that although it’s too large for such a small country with such a weak economy, it’s not on a scale that permits others to make an example of the Greeks. Just as tax evasion is not the single root of the Greek crisis, so tackling it in order that the shadow economy is on a similar level to most eurozone countries won’t cure& the country’s economic problems in one fell swoop. Improving tax collection is one of the many structural reforms that Greece needs, both in its private and public sector, to work its way back to recovery.

As outlined in the previous piece about Lagarde, roughly two-thirds of the Greek work force are taxed at source and cannot evade their income tax or social security contributions. The same goes for more than 2 million pensioners. Some readers have responded that this is not the only form of tax. Agreed, but VAT evasion is also most common among the self-employed professionals who make up the third of the work force that is also most susceptible to income tax evasion. Many businesses are also guilty of this offense. The way the Greek economy is structured means there is a much higher proprtion of self-employed people and small businesses than in other eurozone countries. This makes tax collection a much more painstaking process and requires an efficient and bloody-minded public administration, which Greece doesn’t have. Readers add that some people have second jobs and assets they don’t declare. That’s true too. There are thousands of Greeks who take advantage of an ineffective and corrupt tax collection mechanism, which is only being overhauled now, to dodge paying their dues.

But how does this make Greeks different to anyone else? The only difference is that the inability of the state to collect taxes effectively in Greece means some people can evade paying them. In other countries where the tax collection system is more effective, citizens and businesses can use legal loopholes to do exactly the same thing. Where Greeks evade, others avoid.

One doesn’t have to go very far to find ample examples of this. The BBC’s “Panorama” program recently discovered that major UK-based firms cut secret tax deals with authorities in Luxembourg to avoid millions in corporation tax, Germany and Switzerland signed a deal in April so Germans who stashed away their money across the border will receive an amnesty in return for paying tax and, this week, the Internal Revenue Service in the US revealed that one in 189 people reporting an income of 200,000 dollars or more in 2009 paid absolutely no tax and did so perfectly legally.

Nevertheless, some people in these countries — and elsewhere — have felt a sense of moral superiority, one that allows them to wag their finger at Greece but not use it to point to the dubious practices in their own country.

They argue the figures in Greece are much worse: There’s about 60 billion euros in uncollected taxes. True, but even the troika accepts that only about 8 billion euros of this is collectible. The rest is mostly the debt left by individuals and businesses that have gone bust. But look at the size of the black economy in Greece, some add. Yes, it’s worryingly large but when placed in a European and global perspective, the moral outrage flung in Greece’s direction seems exaggerated.

Using World Bank data, late last year the Tax Justice Network compiled the details of the shadow economy in 145 countries. In Europe, 1.5 trillion dollars is lost to tax evasion each year. Greece accounts for just 29.4 billion of this. Greece’s shadow economy is equivalent to 27.5 percent of GDP. Although unacceptably large, this isn’t even in Europe’s top 10 and is still well below economic powerhouses such as Brazil, where it reaches 39 percent, and Russia, where it is as high as 43.8 percent. When your economy roars, as it is doing in these two BRIC members, it seems there is less moral outrage about whether taxes are being paid.

Even on a eurozone level, Greece is third in terms of tax evasion and is by no means in an exclusive club: It is one of nine euro-area members that has a shadow economy that is equivalent to more than a fifth of its GDP.

Country Size of shadow economy as % of GDP
Estonia 31.2
Cyprus 28
Greece 27.5
Malta 27.2
Italy 27
Slovenia 26.2
Portugal 23
Spain 22.5
Belgium 21.9
Slovakia 18.1
France 17
Germany 16
Ireland 15.8
Finland 15
Netherlands 13.2
Austria 9.7
Luxembourg 9.7

However, how many times has a European official — be it a Commission representative or a member of a foreign government — or the head of an international organization publicly lambasted people in a eurozone country other than Greece for not paying their taxes? How often has the international media focused on the failure of people or businesses in these countries to meet their dues? Does the crisis in Greece mean it’s more morally objectionable that some taxes go unpaid?

Largely due to its own making, Greece finds itself in a mess that has given others the right to cast all kinds of aspersions on the country and its people. But those who find it so easy to claim the moral high ground often do so out of ignorance. They ignore the facts and block out any possibility that they could befall a similar fate to the Greeks. Perhaps the moralizing also helps them, like it did Lagarde, overlook the fact that — regardless of what has gone before — some people in Greece are truly suffering. It’s telling that most people focussed on her comments about tax evasion rather than having more sympathy for children in Niger than the Greeks.

But, then again, stories of workers losing their jobs every day, thousands having no benefits or healthcare, sick people not being able to buy their medicines and some being pushed so far they take their own lives are not what you want to hear before bedtime. These are the kind of stories that might just keep you awake at night.

Nick Malkoutzis

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19 responses to “For sweet dreams, evasion and avoidance

  1. Well written as always.

  2. Nick, I am really glad that you pointed out so clearly that more than half of Greeks (recipients of salaries and pensions) are taxed at the source. That always gets overlooked. It also reveals what the government has done in the last couple of years: they have hit the “usual suspects” because that is the path of least resistance. That way, they are hitting the anonymous masses. When one hits the special interest groups, one hits people that one knows and who might endanger one’s own political power base. The only trouble is that when anonymous masses get the chance to voice their feelings, like at election time, they will voice them.

    The real issue to me is fairness and that is where I would rank Greece at the lowest point of all the 8 countries in which I have lived. On one hand, a very large part of the population goes through enormous stresses, whereby I consider the emotional stress at least as high as the financial one. But you know as well as I do that another large part of Greeks lives very well, even today.

    I have lived in Chile/Argentina in the 1980s when those countries had similar crises as Greece has today. One could see the crisis in everyday life! Living in a well-to-do suburb of Thessaloniki a good portion of the year, I have to look quite carefully to see the crisis in everyday life. If some agitator made a video of the life I see and showed it on TV in the surplus countries, he would put some shock waves in motion, to say the least!

    To give you an extreme example: one of my Greek friends plays golf once a year in Corfu. He told me how wonderful that is and as they walk down the course, they say “Crisis? What crisis? Oh, that crisis!” By the way, he is now playing in Porto Carras and I look forward to his reports from there.

    Bottom line: what really shocks me about Greece is the level of social and financial unfairness and injustice in society. If I were Greek and if my family were among the losers, I might say to my children the same thing which Eleni told hers: leave this country and throw a black stone behind you so that you will never return!

    But, who should leave this country? The “nice ones” or the “clever ones”? Well, they should, of course, all stay but the latter should really begin to be forced to share in the country’s pain!

    • Astute comments, as always, Klaus. I think the biggest gain for Greece from tackling tax evasion would be reestablishing some fairness. The financial gains, while significant, would be secondary.

  3. I agree with you on the whole, but as a businessman based in Athens, the shadow economy has been blown out of proportion by previous governments.
    It served their purpose to overstate and to promise to rein it in, so they could spend lavishly. They blamed everything on the shadow economy and not on their overtaxed creaking system.
    It is very difficult to be in the shadow economy, practically you need to be aligned with the underworld. There is no grey area as in other countries.
    Tax evasion is rife by a hairdresser, plumber, builder and electrician, but a whole country cannot go bankrupt because they are understating income, they still pay VAT on all their purchases for goods, but do not claim it back.

    I agree they should shoulder the burden, but it will not make a game changing difference if they all state their incomes, it will just alleviate the tax base. I think the fallacy that there is wholesale tax evasion is just as big as “Greeks are lazy”.

    The wholesale tax evasion is done by civil servants in seats of power and politicians. It is not uncommon to find a tax official with deposits of hundreds of thousands of Euros, even though their annual salary is 60k a year max. High officials in different ministries same thing. This is not tax evasion only, it is also exploitation of law abiding citizens by unscrupulous people who have power.

    In Greece the mantra “Do as I say, not as I do” is law. Just my opinion based on working and living in different countries and even countries with a massive shadow economy.

  4. There’s another dimension of the issue of tax evasion in Greece, which Ms Lagarde and her ilk never seem to comment on: according to 2009 data (link below), in Greece
    – 5,500,000 tax return forms are submitted per annum. Of these,
    – 700,000 (i.e. 12.7%) contribute 75% of all taxes paid by households and natural persons.

    Now, this tells me that just over 1 out of 10 Greeks has such a huge incone that he or she accounts for 3/4 of the taxes gathered from people and households (i.e. excluding legal persons), while almost 9 out of 10 Greeks (87.3%) on low and middle incomes account for the remaining 1/4.

    Granted that many people on low and middle incomes will try to cheat the taxman. Granted that many will succeed to a greater or lesser extent – and that, regardless of income, in a state that taxes its citizens fairly, tax evasion is unfair – a description that doesn’t fit Greece, however.

    Question 1: given that the majority of Greeks contribute the smallest portion of the total amount of taxes, can the impact of tax evasion they are responsible for possibly exceed, or even be equal to, the impact of tax evasion that the handful of privileged Greeks (cue, Ms Lagarde’s most recent comments) on enormous incomes is responsible for?

    Question 2: given that the austerity terms of both bailout agreements attack and economically disable almost exclusively the low and middle incomes – i.e. the almost 9 out of 10 Greeks mentioned above – hardly touching the privileged (roughly) 1 of 10 Greeks, how is that a (a) fair and (b) economically effective punishment? Morality aside, on purely pragmatic grounds, if any Greek government, Ms Lagarde, Ms Merkel, Mr Rehn and their entire wild bunch (wild on austerity, that is) want to net taxes that will make a considerable difference to the Greek state’s finances, they should target the hitherto untouchable 12.7%, as well as big companies.

    http://www.sev.org.gr/Uploads/News/PR_forologiki_pragmatikotita_041109.pdf

  5. Nick:

    That we Greeks have to reform for the better is without a doubt.

    However there is a fine line between the German Taliban propaganda of terror waged over innocent Greek citizens for Teutonic self-interest and the need to improve Greece’s functioning as a modern state.

    When you complain about tax collection you need to frame the issue correctly. When Frau Dracula’s propaganda machine is in full daily gear around the globe dispensing falsehoods such as a possible Grexit, how can you blame inability to collect taxes?

    Because even the dumbest of citizens understand that if there is even a remote possibility of a monetary regime change, it is best to adopt a wait and see attitude.

    Why would the average Greek citizen rush to fulfill tax obligations when the very state they support is in the brink of exit from the eurozone according to Merkel’s terrorism? Don’t you think this ambivalence towards Greece greatly enhances the inability to collect taxes? After all, aren’t the taxes collected with the rationale of dispensing overall benefits to the citizens themselves in the form of services and public infrastructure? what benefits? and by whom? the atrocious propaganda machine whose only interest in Greece is to minimize German damage?

    Find a way to frame this issue in the proper context and then you will see taxes flow into the state coffers again. Until then you are crossing the unseen line of aiding and abating the enemy.

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  9. An excellent article. Thank you most sincerely

  10. drella45@gmail.com

    From an outside view this article is just another example for the fatalistic mindset of many Greeks.

    If your tax system works in favour of the rich then change it.
    If your political parties are corrupt then form new ones
    If you feel humiliated by creditors then default or create a successful economy

    But pleeeease stop to annoy the whole world with your entitlement mentality and endless moaning and finger pointing. Honestly I have never seen a country less willing to take responsibility for its own affairs.

  11. With one anonymous exception, this whole discussion has been very enlightening and progressive. Now let’s help get things moving in an active positive set of directions.

  12. Pingback: Greece Solidarity Campaign Update 3 – (9 JUNE 2012) | Coalition of Resistance Against Cuts & Privatisation

  13. Pingback: Greece Solidarity Campaign Update 3 – (9 JUNE 2012) | Greece Solidarity Campaign

  14. Crafty Pilbow

    I am not Greek, but I have been living in Athens for almost two years. I think I am the only person who has actually emigrated TO this country. I’ve seen plenty of Greeks leave — rats off a sinking ship. The corruption in this country is staggering, as is the selfishness and sense of entitlement. I know that Greeks like to think they are hard-working. A recent Pew study reports that Greeks consider themselves the hardest working people in Europe. So I guess we should add self-deceived to the list, too. Still, it is odd that such a hard-working people produce nothing, import everything, and quite obviously live far beyond their means. Well, not anymore. And yet, still people try to ignore the myriad flaws in the Greek state, and the moral decrepitude in the Greek soul, and construct elaborate rationales for why Greece is only as bad as other places. It isn’t. It’s worse. And everybody knows it now.

    • Do you drink venom for the pleasure of it? You certainly spew it.
      Hellas produces the best cheeses and yoghurts on the planetoid. Amazing olives and olive oil. In fact there is a large array of items manufactured or grown and processed and then exported.
      Then there are the people. OECD figures have Hellenes working harder than Germans but if you observe men in their retirement years and use that as a measure, well…
      The Germans, of course, who slaughtered 15% of the population in WW2 and devastated infrastructure which severely affected the nation for DECADES.
      If you are so unhappy, feel free to leave. But the fact that you have been there for two years states much about your true love for the place and her people. ZHTO ELLAS>

  15. Crafty Pilbow

    Nikos Konstandaras, the managing editor and a columnist at Kathimerini, writes this is today’s NY Times: “What I want to remember from Greece in 2012 is how laziness and years of intellectual sloppiness wasted the gift of freedom… — how we allowed our leaders to pander to us until we had no one capable of leading us…”

    I rest my case.

    Though I can’t help but add that when Oedipus realized what he had done, he accepted responsibility and tore out his eyes. He didn’t blame the Germans.

  16. Pingback: Greece Solidarity Campaign Update 3 – (9 JUNE 2012) : Greece Solidarity Campaign

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