ECONOMY

Indirect taxes keep prices high, but are not exclusively to blame

The Consumer Price Index in Greece would have been reduced by 1.3 percent in April compared to the same month in 2012 had there not been any new indirect taxes imposed and, above all, had the special consumption tax on heating oil not been raised to the same as that for diesel last fall.

That 1.3 percent decline would have been the biggest across the 27 members of the European Union, according to data on the harmonized consumer price index released by Eurostat, using unchanged tax charges. When the taxes are factored in, though, as is done in order to establish the actual level of the price index, Greek prices recorded a 0.6 percent drop in April from the fourth month of 2012, i.e. less than half the decline that Greek consumers could have enjoyed.

The main value-added tax rate has risen twice since March 2010, from 19 percent to 21 and then to 23 percent, while the reduced rate that mostly concerns food has been raised three times, from 9 to 10 percent, then to 11 and currently stands at 13 percent.

True, the VAT rate has risen in the last three years across a series of EU states (Cyprus, Ireland, Italy, Spain, Hungary, Poland, Portugal) and not just in Greece. This may weaken somewhat the argument that Greece is more expensive than other member states due to the indirect tax hikes, but the fact is that these hikes burdened retail prices that were already fixed at high levels.

Worse, the reduction in consumption and therefore the loss in turnover that enterprises have suffered has dissuaded them from making any significant reduction to their retail prices, in order to avoid suppressing profit margins any further. Fter all, this is one of the main reasons why the increase in indirect taxation has had a longer-lasting impact in Greece than in other countries. This coincides with recent statements by food service entrepreneurs who said that even if VAT in their sector was reduced from 23 to 13 percent, they would not reduce their retail prices.

There is no doubt that the indirect taxes, such as VAT and special consumption taxes, have a significant bearing on the final prices. Yet they are neither the sole nor even the main factor for the timeless phenomenon of expensive commodities in a number of economic sectors in Greece. Such an approach also offers an excuse for retaining prices at high levels and has in the recent past led to ministers in the same cabinet blaming each other for the situation.