Tax increases have not worked

Tax increases have not worked

Since 2010 Athens has introduced revenue-boosting measures worth almost 37 billion euros in total, but the result is quite disappointing, as the European Commission’s official data show that state revenues have declined by 9.2 billion euros in the same period.

In total the Greek governments of the last six years have voted austerity measures of 72.6 billion euros through spending cuts, new taxes and other interventions in a bid to streamline the state finances. The measures taken in the last seven years amount to some 40 percent of the country’s gross domestic product today. In the same period, GDP has shrunk about 26 percent.

It is clear that the tax measures are not fetching the anticipated benefits to the state budget, unlike the expenditure cuts, which are much more beneficiary for the state. The data showed that in the period from 2010 to 2016, the spending cuts amounted to 35.8 billion euros on paper, in practice reducing budget spending by 33.1 billion euros.

When governments took measures to reduce spending in order to contain the budget deficit, the success rate of their interventions amounted to 92 percent, meaning the efficiency of the measures was certain. By contrast, the interventions on the side of the revenues effectively reduced the income of households and enterprises without helping the state budget.

So far, no government has managed to put an end to the vicious cycle of recession and austerity, although in 2014 the then administration came close to doing so. At the Finance Ministry they are hoping that 2017 will be the first year the vicious cycle will be broken: They estimate that the economy will grow by 2.7 percent and this will lead to revenues outperforming.

Still, next year is also going to witness new interventions on the side of taxes – particularly indirect ones – generating some concern over the impact they may have on private consumption.

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