Greece is attempting to pin down its billionaire tax evaders to try and stave off its creditors.
The disciplined Northern Europeans are right to be shocked. The fact that Greeks don’t like paying taxes has almost become a cultural fact. Greeks themselves acknowledge this but they have an important defence: the fiscal storm battering the country since 2010 has affected almost exclusively the working and middle classes, while the highest earners have been let off scot-free. This injustice has only encouraged the spread of tax evasion.
These are the arguments that Greece’s Finance Minister Yanis Varoufakis has put to his stern European interlocutors.
The former troika made up of the European Central Bank, International Monetary Fund (IMF) and European Commission has directly governed the country’s finances for four years. Greece’s fiscal balance is disastrous: tax evasion is estimated at around 30% of GDP.
IMF chief Christine Lagarde admitted in September that when she raised the question with the government of former Prime Minister Antonis Samaras, she received death threats. Which may be why the former troika opted for the easy solution of clamping down on those who cannot evade taxes: workers and pensioners. And focusing on assets such as real estate, now among the most highly taxed and depreciated in all of Europe. The objective of Prime Minister Alexis Tsipras’ government programme is to relieve the burden on the low-to-medium income earners and crack down on those who have enjoyed total fiscal immunity: the Greek oligarchs, most of whom are shipping magnates. Also on the agenda is the annulment of a constitutional article that enables shipping companies to be taxed on the volume of cargo rather than on revenues.
But since reforming the constitution is complex, the government has turned its focus to other activities in the hands of the oligarchs, such as broadcasting. In March, the government officially requested that the country’s seven private television stations pay a total of €24.15 million in back taxes that they have owed since 2011. Moreover, the concessions for the digital frequencies that were obtained in 2013 will be reassessed.
One month later, Leonidas Bobola, the scion of a construction and media mogul family, was arrested (for less than an hour) for unpaid back taxes of €1.8 million. Another businessman from Mykonos had to pay €2.6 million for tax evasion in 2009 alone. Taking advantage of the laws approved by the former government (including immediate arrest for failure to file taxes and seizure of bank accounts), the Tsipras administration has begun to put the tax returns of Greece’s richest families under the microscope.
First up are some 1000 names on the infamous Falciani list made up of Greeks alleged to hold secret bank accounts in Switzerland. They were given, however, a chance at indemnity; anyone owing back taxes can request to repay the money gradually, even in up to 100 instalments. The measure was an immediate success. From January to April, the net budget revenue was 15.2% higher than expected, surpassing €3.7 billion. In the first four months of 2015 the primary surplus in Greece totalled €2.164 billion, twice the amount obtained in the same period in 2014.
But this alone cannot solve the problem of public revenues, especially considering that the burden of debt is €353 billion, or 177% of GDP. Which is why the new tax laws have been at the heart of the tough negotiations that have been taking place with creditors since the left’s election victory. The creditors want a net increase in revenues and the payment of instalments of debt.
The Greeks want to avoid borrowing more money to pay the previous debts and would ideally like to effect a serious restructuring of the existing debt. Ultimately, it will be necessary to achieve what Tsipras has called an “honourable compromise”.
Creditors’ requests for an increase in a flat VAT tax of 23% met with a counterproposal from Athens: an increase to just 18% and only for luxury goods, such as hotels with four stars and above, and adding new taxes for cars with engines over two cylinders, pleasure boats and yachts.
The VAT problem is a delicate one because the former troika made some significant errors. For example, increasing VAT on heating oil by ten points led to a slump in consumption and a consequent dip in state revenues. There are similar risks threatening the islands, the favoured tourist destinations where taxes have remained at pre-crisis levels. The Greek finance minister is focusing instead on generating effective revenues from the VAT, almost half of which is currently unpaid due to tax evasion. One proposal is to make credit card use obligatory for transactions over €70, a measure that would first, however, require reducing the bank charges for such transactions, which in Greece stand at 2.5%.
Another idea is to employ the Italian strategy and offer a partial pardon on undeclared foreign assets returning to Greece from abroad that would be taxed at a maximum rate of 15%. It is estimated that Greeks have over €600 billion deposited in diverse foreign tax havens. In order to get things moving Athens has already begun working with the Swiss government on an agreement for full banking transparency similar to the deal signed between Bern and Rome.
Greece is attempting to pin down its billionaire tax evaders to try and stave off its creditors.
