Do we like tax evasion?
Kostis Hatzidakis had made the war against tax evasion a priority before taking over the Ministry of Finance. It wouldn’t be easy: There are a myriad of “clients” of the political system who are affected. Furthermore, if a war begins against the tax evasion of those who are easy to target, you never know where it might end up. It would also necessitate a multi-prong approach: We have the highest tax evasion in Europe, a shadow economy equal to 21% of GDP – against 17.8% on average in the 27 member-states.
The Bank of Greece roughly estimates that 40 billion euros is not declared. This sum cannot be collected with one law, one article, one action, all at once. Finally, while reactions to any new measures are manifested immediately (and have already started), the undeclared incomes would arrive in the state coffers very slowly.
For years now, tax evasion has ceased to be an opportunistic way of surviving setbacks and has emerged as a pillar of the economy’s operation. The small circle of people who pay their tax is “besieged” by tax evaders. As Kathimerini recently revealed, in 2021 taxi drivers declared an average monthly income of 310 euros, hairdressers 285 euros, plumbers 635 euros, dentists 675 euros, garages 500 euros etc. Obviously some people pay their fair share of tax, but 71% of freelancers and the self-employed report an income of less than the minimum wage – they are the “poor” people who were given handouts before the elections by the conservative government – with taxpayers’ money.
Comparing the size of the black economy and tax evasion with the amount of revenues that are expected to be collected in the first phase with the measures announced by the government, a certain feeling of disappointment is justified. This feeling is exacerbated if we take into account the first reactions to the new tax measures, with the main one being the substantial defense of tax evaders by the shadow finance minister of the leftist main opposition and some similar statements by the other parties. However, the truth is that something has started. The risk is that the effort will be weakened and eventually neutralized. It would be good to strengthen this effort with new measures and wider actions. I would focus on three issues:
We have the highest tax evasion in Europe, a shadow economy equal to 21% of GDP – against 17.8% on average in the 27 member-states
One concerns the state’s tax collecting mechanisms. There is a need to strengthen them, by (a) renewing their human resources with young and digitally savvy employees and (b) with modern digital tools – the investment in such tools is inadequate. A five- or 10-year plan to strengthen the Independent Authority for Public Revenue (AADE) would be useful.
The second has to do with tax legislation. Those in the know will tell you that tackling tax evasion will depend on a comprehensive reform and simplification of the tax system. Nothing has been done about this since 2003 – that’s 20 years ago – when the recommendations of a committee headed by Professor Theodoros Georgakopoulos were first presented. It is necessary to start a new effort on this issue.
The third concerns the message sent by the state. The tax office has the right to open bank accounts. Well, use it! Let it start opening accounts for repeat tax evaders, and impose fines where it finds that there is unjust enrichment, as is often the case.
A final and important point: The problem of tax evasion will be radically addressed if there is a change of the country’s economic model. The dilemma is old and crucial: Will the state support the so-called “backbone” of the Greek economy (very small and often indebted businesses) or expensive waged labor, with high education and quality? One (though not the only) condition for doing the latter is to acquire more strong businesses. Brave motives are needed for this. Therefore, part of the revenue from the gradual limitation of tax evasion could be returned to businesses in the form of such incentives.
