Tax reform
The study on income taxation that was recently conducted by a government-sponsored committee has stimulated a public debate over the much-heralded reform of Greece’s tax system. The reform of the tax system affects the foundations of economic growth and touches all social classes, and hence will constitute a second crucial test for the government following the painful experience of social security reform. The present tax system is, no doubt, an obsolete, bureaucratic, inefficient, and socially unjust one. Greece is Europe leader in tax evasion – a phenomenon which has heavy repercussions on the public purse and undermines the governments’ social policies. It is provocative for Greece’s citizens that 70 percent of the manufacturing and commercial enterprises declare an income in the area of 1470 euros (500,000 drachmas), thus making salaried workers and pensioners the main contributors to the public purse. At the same time, the inflexible bureaucratic machine and extensive corruption discourage many would-be investors. This situation has to be combated soon if we wish to exploit the new, historic opportunities to attract foreign investors that are offered by the country’s eurozone entry. Of course, any effort toward a comprehensive reform of the tax system which aims to boost economic growth as well as promote social justice without putting a heavy strain on the public purse seems as complex an endeavor as squaring the circle. The aforementioned study on the tax system shows that a serious effort is underway to strike the necessary balance between various simplifying reforms, changes in the tax scale, tax exemptions and charges. It is hard to say in advance who is to be helped and who is to lose out by the government’s reform proposals. What is certain is that all social classes will soon explore these proposals and react accordingly. The government has to stick to the basic parameters of tax reform and try to ensure the consensus between employers, employees and the trade unions. Otherwise, its good intentions may be undone by awkward handling, as in the case of the social security issue. It is to be hoped that the social security fiasco provided a lesson for the government.
