Wednesday, January 15, 2014

The Odious Aspects of Greek Austerity

Below is an interesting listing of items which make the Greek austerity so much more odius than the Cypriot one, according to the author of this article:

Greece applies a so called crisis levy on profitable companies for 4 years to generate 600mn in additional revenue. That by and in itself is nothing less than the proverbial shot on the foot. Greece raids companies generating profit forcing them to pay over and above the 25% tax (which they normally paid), a disincentive to businesses discouraging them from investing in Greece or expanding their operations there. It is little wonder that huge Greek companies such Coca Cola-3E, Viochalko and FAGE have fled Greece.

Presumptive Tax, in a nutshell taxation on income is not based on normal accounting practises but on assumptions made by the country’s tax authorities. Tax authorities estimate how much tax is owed by the taxpayer based on a number of criteria (see link above) without waiting for the taxpayer to declare income.

It is unfair for a number of reasons. Assume 2 farmers growing wheat, they each produce on average 75 tonnes of wheat per year while the fields’ full capacity is 100 tonnes. One farmer has an exceptional year and produced 80 tonnes of wheat the other just 70 tonnes. By applying presumptive taxation the 1st farmer will pay tax on 75 tonnes (instead on his produced 80) while the other will also pay tax on 75 tonnes (instead of his produced 70).

As I searched through the literature I found that presumptive taxation is applied in countries where there is wide spread tax evasion and tax corruption (admittedly Greece fits the bill on both accounts), but that doesn’t make presumptive taxation any less unfair.

Move services from the reduced to the standard VAT tax rate. Now this is a big one and it is still a contentious issue in Greece. The effect was that tourism related businesses (restaurants hotels) now charged 21% VAT instead of the reduced rate.

Increase tax on wages in kind. Assume your employer gives you a car allowance (or a car) phone allowance etc. Greece taxes you on those allowances.

Excises on non alcoholic beverages, this is my favourite one. They even taxed soft drinks!

Reduction in public consumption and public investment. Admittedly reducing what one consumes is the quintessence of austerity however in Greece’s case that translated into delaying payments to suppliers scarcity of even the most basic items in hospitals such as syringes and bandages and even iodine .

Means Test Unemployment Benefits. A means test implies that the applicant for unemployment benefits will be scrutinised by authorities to ascertain whether he (or his immediate family) have the means necessary to sustain him (savings, property etc) . In the event they do then the applicant is rejected. This is particularly strange since it involves huge administrative costs; also the means test for unemployment is alleged to create a poverty trap. Under normal circumstances unemployment benefits aim to cushion the blow from the loss of income, so that the applicant does not slip into destitution. The means test unemployment benefits regime forces the unemployed to sell/divest any property savings they may possess before they can be eligible for the benefit. In other words the unemployed have to become destitute before they can claim unemployment benefits.


  1. It is considered good manners to cite your source.

    1. It is (was) linked in the second line. Uff, glad not to have violated good manners!!!