Pinpointing the problem
The Bank of Greece estimates that 60 billion euros of income goes undeclared every year, while every study carried out in the last decade sees the shadow economy at a similar level of 30-50% of gross domestic product. What’s more, recent official estimates put the tax evasion stemming from these illegal activities at €8-9 billion – equal to the budget for health and education.
It is a despicable practice with a heavy toll on the economy and even more so on society (expanding inequalities etc), and it must stop. Economy and Finance Minister Kostis Hatzidakis has made this a matter of priority – and rightly so – but how can it be accomplished?
To begin with, by introducing measures that are applicable and effective, not stopgaps. For example, how can property purchases with undeclared money stop when property is being sold above its declared taxable value? Secondly, strengthening tax mechanisms with a five- or 10-year budget plan for digital infrastructure and by hiring new people at the Independent Authority for Public Revenue (AADE), people with more technological expertise, who will be remunerated well. Thirdly, by simplifying tax legislation, a maelstrom that stokes corruption and a flourishing trade for companies advising the haves on how to avoid paying their taxes. And number four is a functional mechanism for settling differences out of court, as it is estimated that some 150,000 tax cases are crowding courts’ dockets.
Moreover, cracking down on tax evasion relies on an overall reform of the tax system. The last serious attempt at this was in 2003, with the recommendations of a committee headed by Professor Theodoros Georgakopoulos going, unfortunately, unheeded. It would be useful, therefore, to put together a new working group of capable advisers who will be given a period of two years to develop a new tax system that will be implemented gradually.
A practical mindset and determination are also key to cracking down on tax evasion. For example, AADE can look into the bank accounts of people caught in the act of tax evasion, as well as of their close family members.
Good intentions are not enough, though. The source of the problem needs to be identified and measures taken to deal with it. Runaway prices are one such source.
Competitiveness Minister Kostas Skrekas recently announced a “ruthless” crackdown and a ceiling on all companies’ windfall profits. That would be great, if it were true, but it is not. The ceiling pertains only to the last link in the chain: retail. It does not apply where prices are really formed, which is at the import, wholesale and manufacturing level, to companies accustomed to working with profit margins that are among the highest in Europe. And since the government refuses to cap their profits despite the crisis, prices will just keep going up. Simple.
