As always, the easy route

The war against financial ruin has not yet been lost, but the prospects are far from bright. It would be unfair not to recognize that the government has achieved much over the past eight months. However, it’s the result that matters. And this leaves a lot to be desired because it is headed in the wrong direction. The real economy is sinking deeper into recession and all signs indicate that the worst is still to come. Save for a dramatic change of course, George Papandreou’s government will waste its most precious commodity: the reservoir of public patience and good will shown so far toward the reforms. And this will be the first step into social turmoil. Up to now, the government has introduced a tax amnesty to make up for falling revenues. But the price of this policy is too heavy. On the ethical level, PASOK is rewarding tax evaders, which effectively undermines all attempts to cultivate a society of willing taxpayers. More precisely, the government is encouraging wrongdoing, as it affirms the widespread impression that tax dodgers are asked to meet outstanding obligations at less cost. The prime minister has pledged that this amnesty will be the last before the dawn of a new era. But his words ring hollow. Taking the government’s policy into consideration, a cost-benefit analysis shows that tax evasion is in the taxpayer’s best interest. In practice, this means that the next tax amnesty becomes a self-fulfilling prophecy given that no collection mechanism will be capable of tackling an extensive wave of tax evasion. But even in the tight fiscal spot Greece is in, the amnesty makes little economic sense. The government has squandered a chance to raise large sums of money from thieves and tax dodgers. Collecting that money would not damage overall demand, as these funds are usually tucked away in Greek and foreign banks. Rather than looking for an excuse on the grounds that it is impossible to settle outstanding cases and collect debts to the state, the government should have imposed strict measures to make sure this happened. Cases involving tax evasion must be fast-tracked through the judicial system so it is clear to all that there will be no escape. A campaign of systematic inspections of suspects would bring in a great deal more money than the tax amnesty is expected to. But the government once again chose the easy path – the route that has brought us to the verge of disaster.