Greece’s story includes tax compliance

World Bank data to the end of 2013 shows Greece has only 29 per cent of its GDP as tax receipts; the EU average is 37 per cent. – Breitbart

Navagio beach, Zakynthos, Greece

There are three major factors in Greece’s success in the future:

  1. Government expenses (primarily employee compensation and pensions)
  2. Youth unemployment (which is at about 55%)
  3. Tax Compliance

The first two are discussed a lot because of the dramatic human toll newspapers can interest readers in. Decreasing government pay could look like the government is gouging its employees when they could be raising taxes on wealthier people who can afford to pay, but Greece is also notorious for high pay and early retirement, some as early at 50 years old, which makes employees look like they are milking the system. Youth unemployment is a particularly difficult topic of people because many older Greeks do not make much money but then they must also support their grown children (18 to 24 year old) who cannot get career jobs and are employed part time for part of the year. There is a generational battle here. Older people can command higher wages with their knowledge and experience, but younger people are cheaper.

Tax collection has its human aspects as well. In this day and age, there is really no tax collector. It is all done through administratively by filing papers or filing online. The human aspect of the tax collection story is on the issue of tax evasion. In greece, such a small percentage of people actually pay taxes when they owe taxes that the tax rate really doesn’t matter. If tax rates were raised in order to close the deficit (government funding gap), then more people will evade taxes. If taxes were lowered, the government would just reduce revenues because people had evades taxes for so long that they would not want to reveal how they have been making a living to begin with. Tax avoidance isn’t much of an issue since Greek tax structure is simpler than in the United States. When so few people pay taxes, making it more difficult to figure out how much one is supposed to pay only increases the likelihood of evasion. (Tax avoidance is the act of avoiding taxes in ways the law allows, like a deduction. Tax evasion is to not pay taxes in part or in whole.)

It is hard to blame Greeks for not paying taxes. First, non-government employees get very little for the Euros paid. It isn’t like Greek infrastructure is among the best in the world. It isn’t like Greece is a leader in an industry. Greece’s biggest attraction is tourism. Just look at the picture of the beach. Beautiful sand, clean blue water, happy people sunbathing; it’s the type of place people imagine when they imagine paradise.

But even if Greece paid its taxes, it has a long way from being financially healthy. Let me bring the financial aspect of this discussion down to ground level. Each of Greece’s 11 million people owe about $23,000 and they earn about $22,000 per year. That actually isn’t too bad except each Greek owns only about $18,545. Compare that to the United States. Each American owes about $55,000 and earns about $53,000. Per cent, it is almost exactly the same as Greece. But each American owns about $257,232. These are all averages, of course, and it does not address distribution. The point is that on average a Greek person can’t give up all of his wealth to pay of the debt and start outright, while an American could pay off the debt with about 80% of their wealth intact.

Greece now has a little bit of a surplus, meaning they are making a little more than they are paying to live. If this continues, with some adjustments in the way it collects taxes, it could work its way toward financial solvancy. But at this point, it looks like it is just too difficult people for Greeks to do, at least not while the sun continues to shine on their beaches.

Bibliography


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About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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