Saturday, September 20, 2014

Greek Tax Revenues

According to ELSTAT, total tax revenues for 2013 were 83 BEUR (page 18 of this Economic Bulletin). Since the state records revenues on a cash basis (instead of an accrual basis), these are not all taxes due but only that portion which was actually collected. Interesting questions pop up when comparing this figure to the data compiled in this Macropolis article.

At December 31, 2013, after the state had collected the above 83 BEUR, there were still another 61 BEUR in taxes due to the state but not paid by the respective tax payers. This is referred to as 'legacy'. Put differently, had the state been able to collect all of the 'legacy' in 2013, tax revenues would almost have been twice as high as they actually were.

The word 'legacy' suggests that there was a one-time problem in the past which may or may not be cured going forward but since it is a one-time problem, it will not become greater. This is not the case here. Instead, from January-August of 2014, taxes due but not collected were 9 BEUR. Thus, the 'legacy' of 61 BEUR at December 31, 2013 became a 'legacy' of 70 BEUR by the end of August. Over 1 BEUR per month on average was the amount of taxes due but not paid so far this year.

Of the 2013 'legacy' of 61 BEUR, roughly 1 BEUR could be collected during the first half of 2014. That looks like a lot of money but it represents a collection rate of only 1,6%. The government hopes to collect another 1 BEUR of the 2013 'legacy' in the second half of 2014 which will bring the annual collection rate to 3,2%. At the same time, at least 12 BEUR will be added as 'new legacy' during 2014.

This has the characteristics of moving one step forward while retreating two steps at the same time: 2 BEUR of old debt is collected while 12 BEUR becomes new 'old debt' as the year goes on. On a net basis, 'legacy' will increase by 10 BEUR during 2014.

When debtors don't pay their obligations, there are always two questions to be asked: is it their unwillingness to pay or is it their inability to pay?

When tax payers could pay their taxes but are unwilling to do so, the full force of the judicial and executive should come down upon them. When tax payers don't pay their taxes because they are unable to pay, no judicial or executive is strong enough to make them pay. That would be like attempting to draw water from a dried-out well.

Who are those culprits who don't pay the taxes due? It can't be the receivers of wages/salaries or pensions because there the income taxes are withheld at the source. My understanding is that this group accounts for roughly one-half of the Greek tax subjects.

I can only guess that the culprits are those who have tax obligations as a result of deemed/assessed income or tax obligations stemming from non-income items (real estate, etc.). Here, again, the question is whether they are true culprits due to unwillingness to pay or whether they are victims due to inability to pay.

I read all the time how inefficient the Greek tax collection system is but, then, I often hear stories from friends where I have to marvel about the efficiency of the Greek tax collection system. One of my friends who is 59 and has been without official income for over 2 years inherited a small house in Litochoro. The authorities have now required him to produce evidence that the house was built before 1955, otherwise it would be deemed as an illegal construction and all sorts of penalties would become due. There is a court document on record where his grandfather swore under oath during the 1950s that he had owned the house since 1940. That, however, is not good enough. The authorities want an official record and my friend doesn't know how he can produce one. He fears the penalties might exceed what the house is worth today. Add to that the taxes he has to pay on income which he doesn't have but which he is deemed to have because he owns a car and the apartment where he and his family of 3 live and you can understand that the man fears to soon be financially wiped out.

Or my sister-in-law, a grammar school teacher with low income, who was presented an aerial photograph showing that her balcony in central Thessaloniki exceeded the approved limits. She had not made any changes to the balcony since she bought the apartment but that is irrelevant; she has to pay. Now, that is quite an efficient tax collection system as far as I am concerned!

And those very same tax authorities have trouble discovering swimming pools in Athens, to use that famous example? To identify the owners of anonymous corporations which own luxury real estate, yachts, etc.?

I am all for chasing past-due taxes from subjects who have the ability but not the willingness to pay. When it comes to tax subjects who have no ability to pay, one has to wonder how those tax obligations came into existence in the first place. It serves the state no purpose to build up 'legacy' when there is no hope of ever collecting that 'legacy'. More importantly, it is simply immoral to tell financially insolvent tax subjects that their tax liabilities keep going up.  If I were one of the latter, I wouldn't give a damn about a possible bank run. I would vote for SYRIZA if they promise to help me get out of my bind.


  1. House owners are the worst victims of the memorandum years. I speak as a house owner.

    The tax burden is insane and, as you say, not supported by income.

    To add insult to injury, there is no market in real-estate anymore. You can't sell your house to relieve yourself from the tax-burden because THERE IS NO MARKET. Neither you can generate additional income because with 27% unemployment, well, obviously you can't.


    I'm still curious to see how all this will play out, and I'm still far from convinced that the euro will survive. Lest we forget, not only the malaise has set foot in core Eurozone, but debts continue to increase everywhere due to the lack of growth.

    1. When I read the quote below, I couldn't help but think of you and that you would strongly disagree with it. Am I right?

      "Remember, that a lack of demand is, in the Keynesian religion, the original sin and the source of all economic troubles. “Aggregate demand” is the sum of all individual demand, and all the individuals together are not demanding enough. How can such a situation come about? Here the Keynesians are less precise. Either people save too much (the nasty “savings glut”), or they invest too little, maybe they misplaced their animal spirits, or they experienced a Minsky moment, and took too much risk on their balance sheets, these fools. In any case, the private sector is clearly at fault as it is not pulling its weight, which means that the public sector has to step in and, in the interest of the common good, inject its own demand, that is “stimulate” the economy by spending other people’s money and print some additional money on top. Lack of “aggregate demand” is evidently some form of collective economic impotence that requires a heavy dose of government-prescribed Viagra so the private sector can get it’s aggregate demand up again".

      It comes from the following article:

    2. Yeah, I disagree with everything said in that article.

      I would hardly call Japan Keynesian.

      Japan's policies have pretty much been along prevalent neoliberal lines: attempts upon attempts to get the credit machine rolling again. Fiscal deficits were THE RESULT (automatic stabilizers) of the stalled economy and not a failed attempt to kick-start it (as the author implies).


  2. The difficulty: tax authorities still in many cases can not identify if there is inability or unwillingness.
    In some cases some people use companies large and small and political & banking "contacts" during last years to receive loans in Greece to invest them outside Greece, with main argument to expand operations. Many of those companies were dealing with financial problems, but some with much less.
    The result, a growing number of companies, more than anticipated, in Greece declare bankruptcy. What happened to those loans? Many assume that never invested and become new loans to foreign companies or simply deposits.


  3. This article may help you understand better. These aren't just "taxes", but in general, "debts towards the state". Many involve money that business owners owe to the pension funds for their employees for example. The ministry of finance, in older article, was admitting, that maybe only 20% was retreivable (it was proven overoptimistic). Amongst the measures that the ministry has taken to collect, were:

    - the debtor can't get fiscal certification that has no debts.
    - his bank accounts are blocked.
    - any asset he tries to sell, will be confiscated.
    - bank accounts, pensions, wages, get automatically confiscated. The responsible state service will be able to ask confiscation through email.

    The balcony of your friend, was "identified", with exactly the same system they first employed a few years ago, because they couldn't find the pools... That is, aerial imaging. Maybe your friend wasn't cunning enough to deploy camouflage nets, as some pool owners did.

    The taxation in Greece, not only changes (to the worse), every year, but has also completely destroyed many people. The real estate property as other said, is an example. Someone who is unemployed, because he inherited a house in his home village and he has a car for example, gets to pay absurd taxes, because these are used to calculate a theoretical income that according to the finance ministry he has and he can't declare income below that. He can't sell the house either, because nobody wants it. Similar stories exist for instance to house owners that can't rent an appartment they have, which is 33% of the total house for rents that were 3 years ago. They only get a 20% discount, if they prove that their house was empty and without electricity. If they hadn't thought to interrupt in time the electricity service, they will play full tax. Even funnier, the value of the houses, is calculated with the "objective value" prices of before the crisis, while in reality, the house now are worth half of that. So you pay a tax for something that brings you no money, for a value that doesn't exist and this is also being calculated for an imaginary income you may not have.

    1. For clarification, the 83 BEUR includes according to ELSTAT:

      Taxes on income and property
      Taxes on production and imports
      Social contributions
      Capital transfers

  4. This article in the "Spiegel" does not explain the legacy problems, but it throws some light on the difficulty of collecting taxes in Greece:
    (not available in English, as far as I know)