VAT rate hikes always reduce state revenues
Value-added tax rates have been raised three times since 2010, all within the space of one year: in March and July 2010 and then in January 2011. The hike that the government is negotiating with the country’s creditors will be the fourth in five years.
Already the low and very low VAT rates have gone up by 44 percent since early 2010 – i.e. from 4.5 to 6.5 percent and from 9 to 13 percent respectively – while the main rate has grown 22 percent, from 19 to 23 percent nowadays.
Those hikes, intended to increase the state’s income takings, in fact reduced revenues by 20 percent: In 2014 VAT revenues dropped below 14 billion euros, to 13.6 billion. For this year, the budget had provided for VAT revenues of 14.4 billion, but in the first five months there has already been a shortfall of 350 million compared with the target for that point of the year.
In comparison with 2008, the year that the recession started, VAT revenues shrank by 5 billion euros in 2014 in spite of the major hike in the rates.
Modern Greek economic history has shown that any indirect tax rate increase leads to a reduction in consumption and an increase in tax evasion, meaning that revenues go down instead of up.
