In a country where tax evasion finds prominence, the next thing you can expect to watch out for is low or slow economic growth, except in developed countries with other significant active revenue sources. And Greece isn’t exempted from one such country with prominent tax evasion.
According to the world population review, the Greek debt is now rated at €332.6billion, equivalent to the dollar counterpart as $379billion US dollars. The country is second to Japan as one of the countries with the world’s highest national debts. Before this financial downturn, the Greek economy was booming appreciatively and was probably envied by many nations, especially between the 1950 1970s.
The service and the tourism sectors were majorly contributing to the Greek economy, and a negative financial upturn couldn’t have been much anticipated. However, in the mid-2000s, the Greek debts began to escalate at an alarming rate. And by 2010, the European Union country with an advanced capitalist economy encountered the most prolonged and perhaps the most significant economic recession. Much more massive than the famous US great recession.
This same year, she announced her intention to default on its debts, thereby treating the eurozone’s viability herself. The European Union, to avoid this default, loaned Greece enough to continue payments. Not only the EU, many European authorities and private investors can be said to have helped Greece receive the most extensive financial rescue for a bankrupt country in history by loaning the country approximately €320billon.
However, Greece has only been able to repay €41.6billon as of January 2019, with the country scheduling debt payment beyond many decades, August 2060 precisely. But why has the Greek economy taken such an awful state? While we can partly blame major external influences like the great recession and the euro sovereign debt crisis, other internal forces culminated in its low stance.
Among these internal influences are the government’s reckless spending, slow economic growth, and particularly tax evasion. Both the first and the penultimate of the aforementioned internal influences contributed minimally to the Greek economy’s negative drastic change compared to tax evasion, which is a substantial negative influence. In the year 2008 and the beginning of 2009, tax evasion’s size in the Mediterranean country was so huge that it accounted for nearly half the country’s budget shortfall in those years.
Many employed citizens refused to declare their real income to the Greek government to avoid paying more taxes. Since Greek banks will need to receive factual earning statements and enough financial information for loans and mortgages, they had reasonable water-holding income estimates. When the bank data and the government data were put to a scrutinized comparison, a significant difference of about 1.92 times larger was discovered.
An average Greek worker reported less than 1.92 times of his/her actual income to the government. As expected, in the year 2009, the tax base shrunk by about $34 billion, a significant money chunk. To effect considerable change, the Greek parliament took up a tax bill that specifically targeted the primary income earners of the country-doctors, engineers, etc., by 2010. But the bill was ineffective since most of these significant income earners have a remarkable representation at the parliament.
The self-employed rate in Greece is twice as much as that of the European average. Small businesses, like workshops with adequate technological tools like the drill press at spindle speeds, hire an overwhelming rate of 59% workers. Therefore, avoidance of tax, issuance of fewer invoices gains grounds due to the small businesses’ high frequency.
Fast forward to 2015, a massive 88% of the country’s revenue comes from taxation, excluding the social security funds’ collection of insurance revenues. The direct tax takes about €20billlon while indirect tax, such as Value Added Tax, fuel tax, etc. culminated into €24billon. There’s little reliance on indirect tax by most developed countries, with the reason not far fetched.
Indirect taxes affect the rich and poor equally and are therefore considered as unfair. But developing countries, on the other hand, relied heavily on the “unfair” taxes. Since the year 2010, Greek revenue has been decreasing steadily, with tax revenue as the most significant decrease; income tax fell from 17.2billon in 2008 to 12.1billions in 2015. The reduced citizens’ income as a contributor to this shortfall.
Also, to make up for these deficits, there was an increase in direct tax rates and additions of new direct taxes like the solidarity tax, reducing the country’s losses but serving as a burden for the citizens, especially the poor. And it wasn’t long before many took to tax evasion for a shelter. However, here is a thought-provoking question. Could the Greek government have been more proactive enough to avert the debt crisis by managing tax evasion?