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January 29, 2014 7:26 pm
Greece’s parliamentary budget office has warned that the country’s taxpayers are exhausted after four straight years of tax increases, reducing the government’s chances of achieving ambitious 2014 fiscal targets agreed with international creditors.
The independent budget monitoring office, set up under the terms of Greece’s bailout by the EU and the International Monetary Fund, said in its latest quarterly report that additional tax rises would be unlikely to boost revenues but could result in higher levels of tax evasion and unpaid debts to the state.
Greek employees and pensioners have seen their tax obligations increase sevenfold since 2010, while self-employed professionals have paid up to nine times more in income tax and one-off “solidarity” taxes, the report said.
“Imposing a further burden on taxpayers already facing a heavy schedule of payments is not going to bring more revenue because tax-raising capacity has been exhausted while tax evasion has expanded,” said the report, which was prepared by five senior Greek academics.
Greeks were assessed for up to six separate property taxes in 2013, including new levies on private homes, building plots and farmland, increasing projected budget inflows from property taxes from €500m to €3.5bn.
“People have been stretched to the limit by the new property taxes, and many people don’t have the money to pay,” said Miranda Xafa, chief executive of EF Consulting in Athens.
But the government still has to find ways of closing a fiscal gap this year estimated at €1.5bn by the IMF but less than €1bn by the finance ministry.
The Troika – the European Commission, the IMF and the European Central Bank – and the Greek government are still far apart after almost six months of negotiations, with Greece under increasing pressure to reach a deal by mid-February or face a prolonged delay in drawing down its next €3.9bn aid tranche.
“Several taxes adopted in 2013 provided only one-off revenue inflows, so additional measures have to be taken,” Ms Xafa said.
A senior finance ministry official acknowledged the primary surplus target is ambitious, given that the economy contracted by an estimated 4 per cent in 2013 and is not expected to return to positive growth before the second half of the year.
Greece’s six-year recession has shrunk output by close to 30 per cent. The finance ministry forecasts the economy will grow by 0.6 per cent this year, while several private sector economists say it could reach 1-1.2 per cent.
“It’s difficult to achieve a turn-around on this scale after such a long period of recession and when the banks aren’t operating effectively,” the official said. ”The bank liquidity we expected isn’t there because households and companies are using deposits to meet their tax obligations.”
However, Michael Masourakis, chief economist at Alpha Bank in Athens, said he was optimistic that fiscal targets would be outperformed: ”The momentum is there for a primary surplus of 2 per cent (of national output) assuming economic activity picks up as projected. It would be driven by a rebound in investment and improved confidence that would encourage depositors to bring funds back to the banks.”
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