Is the Greek fiscal adjustment program actually fuelling tax evasion?

The IMF’s Poul Thomsen said that Greece would fail to meet its targets if more was not done to tackle tax evasion. He said the fiscal adjustment program would not succeed unless “Greek authorities make quicker and more decisive structural reforms to address tax evasion.”

Mr. Thomsen is in charge of the Greek “program” for two years now. His numerous rounds of negotiations with the Greek government have resulted in the following

- Unbearable and debilitating taxes that are independent of income e.g. taxes on property and consumption (VAT, fuel, tobacco, alcohol etc)

- The loss of more than 500.000 jobs in the private sector raising the number of unemployed to more than 1.000.000 or 22% of the workforce. This will certainly result in another “lost generation” similar to the UK in the ‘70s.

- A sharp decline in property values as well as invested capital.

- A monumental credit crunch that has sucked all the liquidity out of the economy.

- Haphazard and ineffective “reforms” that have not addressed the main issues of a gargantuan state, corruption, a failed judiciary and an economy asphyxiated by over-regulation

What the fiscal adjustment program has done is actually to rob those Greeks who did pay taxes in the past of their savings and in many cases of their livelihood. New taxes piling upon previous taxes that have lost their effectiveness as the economy is crashing, are mainly being paid by taxpayers dipping into their savings, thereby further demonetizing the economy.

Mr. Thomsen has agreed to across-the-board cuts to pensions instead of focusing on ridiculously high government and public sector pensions that are placing an unjust burden on the taxpayer. He also agreed to horizontal wage cuts instead of a sweeping restructuring of the public sector and the elimination of hundreds of thousands of totally useless “jobs” in the public sector.

He failed to negotiate and push through real reforms many of which were actually part of his different “memorandums”. It is eminently hypocritical of him to try to pin this on “structural reforms needed to address tax evasion” as he has been part of the group that has shaped the impossible tax burden Greeks are facing today. How can you tackle tax evasion if the tax system is impossible to comply with, collected taxes pay hundreds of thousands of useless public servants and DEKO employees, those who collect taxes are mostly corrupt and the judicial system is impossibly slow and ineffective;

By failing to push through reforms and by piling tax upon tax on the Greeks, Mr. Thomsen has actually been instrumental in fueling tax evasion and has so far crushed those Greeks who did pay taxes in the past. So he’d better shut his foul (or should I say “poul”) mouth.

The remains of an economy

……. but it is like a beautiful woman whose face has been splashed with vitriol. Here and there, an arch, a pendant, a shattered remains of arcade, is all that is left of her renowned beauty… 

The great philhellene and author Lawrence Durrell was referring to the city of Zakynthos after the terrible earthquake of 1953. He could easily have been referring to the Greek Economy after two years of austerity measures that have destroyed hundreds of thousands of jobs, billions of Euros in invested capital and have plunged the population in a permanent state of clinical depression.

Transforming the last Soviet-era economy in Europe to a competitive market economy is not an easy task. It has proven difficult even for powerful leaders with clear objectives and an iron will (which is hardly the case here). Ironically many in Greece blame “capitalism” for all our woes when our economy is anything but “capitalistic”.

Instead of breaking the myriad of bonds that crush any productive economic effort (labor market rigidities, over-regulation, collapsed justice system, systemic corruption) the little men in charge of our rescue decided to tax the economy to death. By applying “horizontal” taxes and pay/pension cuts they have in fact distributed the cost of austerity very unfairly and, worst of all, in a way that has destroyed and is destroying both human capital (the hysteresis phenomenon in unemployment) and invested capital. This means that even if/when the economy picks up again it will balance at a much lower level of economic activity and will lack the means of real growth. And all this in order to “save” (in the medium term at best) the hundreds of thousands of state employees that ND and PASOK have piled upon us in their efforts to remain in power. And, despite Mr. Pangalo’s famous quote (“we “ate” them (i.e. the loans) together”), most of us Greeks were not sitting at his table. We are simply now paying the bill.