Taxation Choking Greek Growth Hopes, Stifling Bigger Recovery

Photo: Eurokinissi/Georgia Panagopoulou.

ATHENS— Prime Minister and Radical Left SYRIZA leader Alexis Tsipras’ claims he’s bringing a recovery after more than eight years of austerity are being undercut by an avalanche of tax hikes, new taxes, and taxes on previously exempt low-and-moderate income families and individuals as well as those hitting businesses.

With three international bailouts of 326 billion euros ($381.54 billion) ending on Aug. 20 – but the austerity that came with them due to linger for years – it’s the high taxation that he promised to cut but continued and raised that’s strangling growth, some businesses told The Wall Street Journal in a feature.

At the Dandy restaurant in downtown Athens, owner Charalampos Bonatsos said rising taxes have forced him to lay off half his staff and cut his remaining workers’ wages and that he’s struggling to pay the last three years’ increases in corporate income tax, property tax and sales tax, the paper said.
“All that matters is reaching the bailout goals. No one cares whether doing business is possible with this policy,” Bonatsos said.

The tax increases have left Greece with some of Europe’s highest tax rates across several categories, including 29% on corporate income, 15% on dividends, and 24% on Value Added Tax (VAT,) a further disincentive to the Foreign Direct Income (FDI) Tsipras wants to lure.

Individuals pay as much as 45% income tax, plus an extra “solidarity levy” of up to 10% while workers and employers pay social-security levies of up to 27% of their salaries, prohibitive for many companies who don’t want to deal with it and many trying to find ways to evade paying.

Most of the taxes have hit small-and-middle-sized businesses which are the backbone of the sector while many self-employed have turned in taxation books, effectively declaring themselves untaxable any more after they were told they’d have to pay expected future income taxes without knowing how much money they’d earn.

Lawyers and engineers, most of whom are self-employed, are fighting the government in court over having to pay what they say is up to 80% of their average monthly takings in taxes and levies and also retroactive social-security contributions.

The rate, some said is more than 100 percent and they are being asked to pay more than they earn while the government is going to hit as many as 30 percent of taxpayers with a tax based on their “presumptive income,” effectively meaning the government doesn’t believe their tax returns and is going to tax them based on what it’s believed they are really making.

The economy is showing signs of recovery although a primary surplus – which doesn’t include interest on the bailouts, the cost of running cities and towns, state enterprises, social security and some military expenditures – also is being built partially by not paying vendors and state debts.
The tax burden is considered the biggest reason companies don’t want to take a chance on Greece, the World Economic Forum said.

“The tax burden creates a serious disincentive for economic activity. It mainly hits the most productive part of the Greek society,” George Pagoulatos, professor of economics at the Athens University of Economics and Business (AUEB) told the paper.

Greece resembles Scandinavian-style taxation, but its welfare state has nothing to compare to theirs: You don’t get anything in return,” he noted, with many Greeks who had been paying being driven to become tax cheats, seeing evasion all around them, especially by the wealthy, many of whom hide their riches in secret foreign bank accounts.

Total austerity measures since 2010 have come to €72 billion ($84 billion), equivalent to around 40% of the country’s annual economic output, mostly from spending cuts but with the creditors – the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) demanding more and more taxation too, along with the other lender, the Washington, D.C.-based International Monetary Fund (IMF.)

“Our arm was twisted,” Finance Minister Euclid Tsakalotos said about taxes after he had earlier admitted deliberately overtaxing the middle class so that SYRIZA could hand out bonuses to lower-income pensioners and jobless youth in a desperate bid to regain favor after reneging on anti-austerity promises has driven its standing polls to as low as 10 percent at one point.

Tax evasion has led to higher tax rates on those Greeks who can’t or won’t evade taxes with the underground economy estimated at 26.5% of the Gross Domestic Product (GDP) of 166.26 billion euros ($194.6 billion,) compared with an average of 16.7% in the European Union, according to a survey by Ernst & Young.

“Overtaxation is a vicious circle, which is not fixing the problem,” electrician Antonis Alevizakis told the Journal. “Only a third of customers want a receipt. The incentive to avoid a 24% Value-Added Tax surcharge is big for them.”

More than 100,000 self-employed professionals have closed their businesses since mid-2016, to avoid rising taxation and social-security contributions, according to Finance Ministry data. Some of these people stopped self-employment, while others turned to the gray economy.

“Businessmen and the self-employed either close their businesses, or they try to keep their income as low as possible,” tax consultant Chrysoula Galiatsatou said. “A financially active part of the population sees no reason to try to do more.”

“There is no reason for someone to invest in Greece when the neighboring countries offer such low corporate taxation,” said Pavlos Ravanis, head of the Athens Chamber of Small and Midsize Industries.

John Douvis, who used his remaining savings in 2015 to move his family’s furniture factory from Athens to Blagoevgrad in Bulgaria said he had no choice. In Greece, he said, “it’s almost impossible for a company to survive unless it evades tax.”