Where’s the fiscal space?

Where’s the fiscal space?

How can additional fiscal space be found to help financially weak households? An obvious answer is transparency and control over spending, and specifically on large sums such as local government spending: According to the law, local government is required to draw up annual balance sheets to be audited.

In practice, there is chaos, with direct concessions deals and waste. A simple measure had been proposed to prevent abuse: To oblige mayors/regional governors to publish a simple list of the subsidies that each local government receives, its own resources, the number of employees and in which position each works.

It would offer a minimum of accountability, capable of preventing “fiefs” in local government and curbing waste. The idea was floated and then rejected – so as not to upset local politicians. Similar phenomena exist in the National Healthcare System (ESY). Thanks to the medical and nursing staff, ESY stood the test of the pandemic and should be strengthened.

The main element of such an effort is resolving the administrative problem: The system needs high-quality administrations so that it will be able to find resources, develop new services and gain a large part of the private insurance market’s spending. Unfortunately, it is suffocated by partisanship, which has led to a fragmentation of procurement, direct assignments, and a web of party/clientelistic dependencies.

While the needs of the state are so great, the discussion about streamlining and saving costs and generating new revenue simply isn’t happening

Ultimately, while the needs of the state are so great, the discussion about streamlining and saving costs and generating new, operational revenue for the state coffers simply isn’t happening. Even more limited is the debate on finding new fiscal space through increasing tax revenues and, above all, cracking down on tax evasion.

In the previous decades, the war on tax evasion was at the forefront of fiscal belt-tightening efforts. In recent years, the phrase tax evasion has entered, it seems, a list of words politicians avoid. They talk about tax cuts, that’s the fad now – but it won’t last long.

In the general climate of relaxation, when money is being distributed indiscriminately, including to tax evaders (by disconnecting state aid from declared revenue and handing it out as help for rent, utilities and other costs), when 6 billion euros is given away – much of which became deposits, luxury cars and real estate purchases – and state guarantees are provided to banks to lend to businesses no bank in the world would lend to, then the fight against tax evasion does not deserve to be in the foreground or the background – it does not fit the environment.

But the war on tax evasion should be an absolute priority. That’s because, in the search for fiscal space, one issue is that much of it has been spent, and another is that there is great scope to find more: (a) We are among the champions in tax evasion and have the third highest VAT rate in Europe, but we are the 15th country based on VAT revenue as a percentage of GDP; (b) due but uncollected VAT amounts to approximately 5.4 billion euros per year, putting us in second place for the loss of revenue.

Therefore, fiscal space will be found if tax evasion is fought. That would allow for VAT rates to be reduced, which – on top of the ever-increasing prices – would bring more money into state coffers by burdening the same sections of the population.

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