Loss of VAT revenues costs billions

Central bank governor?s report sees tax collection mechanism worsen while evasion increases

Greece would have had additional revenues of 9.8 billion euros last year had it matched the average level of value-added tax takings among member states of the Organization for Economic Cooperation and Development, a report by the governor of the Bank of Greece, Giorgos Provopoulos, suggested on Monday.

His report outlines the central bank?s forecasts for this and next year, while stressing the significance of the government sticking to the streamlining program agreed with the country?s creditors.

The loss of VAT revenues is attributed to the chronic problems of the tax collection mechanism, with Provopoulos stressing that its performance is declining further. The problem is further being exacerbated by increasing tax evasion and the lack of liquidity in the market. Had Greece retained the same VAT revenues as 2008, it would have had an additional 2.3 billion euros last year, he said.

?On many an occasion in the past the reform initiatives have come up against the illusion that the system which produced an expensive lifestyle through deficits and debts could be maintained for ever. Nowadays there is no space for such illusions,? argued Provopoulos.

The BoG forecasts that the economy will contract by 4.5 percent this year and by 0.5 percent in 2013, before returning to growth in 2014. Harmonized inflation is forecast at 1 percent for this year and 0.5 percent in 2013. Employment will decline by 3 percent this year and the jobless rate will exceed 19 percent.

The cost of labor declined by 2 percent in the whole of the economy last year, after a 3.8 percent decline in 2010, and by 3.9 percent in the business sector, the report says. Productivity remained unchanged and the average wage of salary workers dropped by 3 percent. Salaries across the economy will fall by about 9 percent this year and by a further 7 percent in 2013.

The report also estimates that by the end of the year some 69 to 75 percent of the competitiveness lost in the period 2001-09 will have been recovered, with the rest recovered by the end of 2013.