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|
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.