Greece: The odds of growth

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Demonising tax evasion and corruption in Greece has long been a governmental strategy in order to avoid the politically costly structural reforms that could lead the country out of its current crises, argues Anna Visvizi.

Anna Visvizi is a political and economic analyst and associate professor at DEREE – The American College of Greece. The following provided exclusively to EURACTIV Germany.

"On 21 February, following lengthy two-track negotiations, an agreement was reached between Greece, its EU partners, the International Monetary Fund (IMF) and the Institute of International Finance. The two basic components of the agreement include: details concerning the programme of a 53.5% Greek public debt reduction and a €130 billion financial assistance programme to recapitalise the Greek banking system and to help the country meet its payment obligations.

The government and the Parliament approved an unparalleled number of laws by 29 February, i.e. just in time before an emergency Eurogroup meeting on March 1 that is scheduled to assess the progress achieved by the Greek government. Part of the deal reached on 21 February is about the strengthening of Greece’s institutional capacity. To this end the European Commission envisages to strengthen the task force for Greece, whereas the eurozone countries stand ready to provide assistance.

It is in this context that one should interpret the news by the German newspapers in line with which the German financial authorities contemplate sending at least 160 tax officers to Athens to assist the Greek authorities in collecting taxes, and thus in fighting tax evasion.

Although it remains to be seen whether Athens will actually accept the idea of German tax officers arriving in Greece, the idea itself is indicative of a lasting misconception as to the true nature of the crisis in Greece. Clearly, the issue of tax evasion and corruption has been making the headlines for the last couple of years rendering Greece – at least at the popular level and undeservedly so – the nation of corrupted, notorious tax dodgers.

Simultaneously, tax evasion was portrayed (erroneously so) as the culprit behind Greece’s fiscal imbalances. As the argument of tax evasion and corruption seems to be reviving today, thus creating the danger of blocking a constructive discussion on a growth strategy for Greece, it is necessary to make some points by means of clarification.

Indeed, according to the Transparency International Corruption Perceptions Index 2011, Greece gets a daunting 80th position with a score of 3.4 (on a scale up to 10.0) and is comparable to El Salvador, Colombia, Morocco, Peru and Thailand. Amongst its European peers, Greece is followed only by Bulgaria that gets a score of 3.3. It would seem that the results of the released in February Eurobarometer survey confirm these results in that 98% of the Greek respondents estimate that corruption is a major problem in Greece, and 80% of Greek respondents believe that corruption within their country is more widespread than in other EU countries.

As revealing as the above findings may be, they are based on perceptions aggregated through opinion polls and surveys. Even if Transparency International seeks to have its surveys peer reviewed, the initial dataset remains subjective. Long it has been proven that scandals, crises, and allegations of corruption, frequently fuelled by the media and employed instrumentally for domestic politicking, affect people’s perceptions of the degree of corruption in place.

As with the notion of tax evasion and corruption, with these two concepts frequently (and wrongly so) being blended into one in the public discourse on Greece, seem to preoccupy some politicians and opinion-makers, it is timely to shed light on some numbers readily available on the OECD portal. The provisional data for 2010 indicate that as regards the total tax revenue as a percentage of GDP, it reached the value of 30.9% in Greece, against 36.3% in Germany, 28% in Ireland and 48.2% in Denmark.

As regards taxes on goods and services, in 2009 their value as a percentage of GDP reached the level of 10.8% in Greece, 11.1% in Germany, 10.1% in Ireland, 11.7% in Poland and 15.4% in Denmark. The major difference in the share of tax contribution to the total GDP is identifiable with regard to taxes on income and profit. In 2009 their share as percentage of GDP reached the value of 7.6% in Greece, against 10.8% in Germany, 10.1% in Ireland and 29.4% in Denmark.

In this context, the OECD report stresses that “personal income tax revenues are more than 5% of GDP below the euro area average, although statutory rates are not especially low”. It is furthermore suggested by the OECD that the so-called self-employed might be the culprits in this regard.

The August 2011 OECD Economic Survey on Greece said that “If Greece collected its VAT, social security contributions and corporate income tax with the average efficiency of OECD countries, tax revenues could rise by nearly 5% of GDP”. Notably the value of the VAT Revenue Ratio (VRR) for Greece is 0.41 (OECD, 2011). This implies that 59% of potential revenue on account of VAT is not collected.

This number would seem to confirm the argument of tax evasion in Greece, had it not been for the observation that the VRR levels for the UK and Spain are the same with that of Greece. At the same time, the value of VRR for Germany, 0.55, falls below the 2008 OECD average (unweighted) of 0.58.

Overall, the numbers presented here suggest clearly that although tax evasion exists in Greece, it is not as serious a problem as the media and some politicians portray it to be. In some cases, Greece fairs better than other countries, and in some cases the performance of Greece is comparable to countries of which nobody would dare call countries of tax dodgers. The insistence by some in the West on the argument of tax evasion in Greece can be explained in the following manner:

As a means of avoiding politically costly restructuring of the public sector, the argument of tax evasion had been employed instrumentally by the Greek government over the last couple of years to manipulate public opinion (at home and abroad) into believing that tax evasion was the culprit of Greece’s downturn.

That this strategy was successful is evidenced in the Transparency International report as well as in the Eurobarometer (both mentioned above). As a result of this strategy, politically costly, yet urgent, structural reforms (including downsizing of the huge public sector, privatisation, liberalisation) were neglected altogether over the last two years, thus guiding Greece to a viable possibility of a sovereign default in spring 2012.

At the time when a €130-billion financial assistance programme for Greece is about to be approved, to complement the first rescue package of €110 billion, and to add to the generous offer by the private sector creditors (cancellation of €107 billion of the Greek public debt) and by the official sector creditors (4.6% of GDP), it is worrying indeed that tax evasion and corruption return to the centre of the debate on Greece’s future.

The danger here is that overemphasis on tax evasion, and the resulting overemphasis on increasing taxation (scheduled for June 2012), rather than a focus on creating conditions for growth (via a sustained effort at restructuring the public sector, liberalisation, deregulation and privatisation), is counterproductive and thus is likely to capsize the genuine efforts at rescuing Greece."

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