Tax reform
Addressing the committee that has been appointed to hammer out a reform plan for Greece’s taxation system, National Economy and Finance Minister Giorgos Alogoskoufis called for radical changes that he later sketched out: First, tax breaks for salaried workers and pensioners and economic assistance to low-income groups; second, incentives to boost business activity and investment, with a gradual reduction of the top tax rate from 40 to 35 percent; and finally, ensuring that the State meets its revenue targets. Alogoskoufis stressed that the new tax system must combine simplicity, transparency and stability. No one would disagree with any of these goals. The real question is whether they can be fulfilled without canceling each other out. The planned reform is a great opportunity that we cannot afford to waste, as with so many others in the past. Without doubt, the current tax system has exhausted its potential. It is lacking not only in terms of social justice, but also in terms of efficiency – mainly because its monitoring methods are, for the most part, outdated. Furthermore, the public is put off by what they consider a system riddled with corruption. It is an open secret that the Economy Ministry apparatus is plagued by chronic corruption. The tax system must indeed serve the three objectives set out by Alogoskoufis. It must function as a lever for development. But what is beyond dispute is that Greece cannot go on with such tax rates. Our EU peers have already taken into account taxation in their struggle for competitiveness. The Greek economy, dogged by serious structural shortcomings, cannot shoulder the burden of such high tax rates when most countries have lowered theirs to a considerably lower level. At the same time, a tax system must promote social justice. This aim, however, such the one previously mentioned, entails a serious reduction in revenues – what is worse, at a time of swelling deficits. Given that no minister and no system is able to square the circle, what we need is to strike a balance so that all three targets are met in the best possible way. But in order to reach an equilibrium, we must first examine all the provisions of the existing system – a process that could bring significant tax cuts or an abolition of tax breaks where they are not justified. In other words, proper reform could result in a fairer system without too much trimming of state revenues. All this must be coupled with measures to curb the notorious underground economy, particularly in the VAT sector. This is a great challenge and the economy minister must live up to his promises. One can only hope that yesterday’s pledges will not become a dead letter.
