Trade with Greece
25
ures the government adopted in order to reach an
agreement with the “Institutions”.
There is an economic theory, derived from the
Laffer curve, which argues that a large increase in
tax rates may bring taxation above the ideal level,
thus impairing consumption, investment and, ulti-
mately, economic growth and causing the state to
collect much less tax revenues than it could. In
Greece, this occurred, according to a report by
the European Central Bank, in 2010. And is still
going on. Tax rates go up in order to bring fiscal
deficits down. These increased rates, though,
also reduce consumption, boost tax evasion, and
cause incomes to shrink, ultimately reducing the
tax base. Thus, despite the increase in tax rates,
actual tax receipts are, eventually, reduced, cre-
ating the need for a further tax rate hike.
The problem is not new. It has been there through-
out the entire period of the Memorandums, and as
a result Greek taxes on heating oil and petrol are
among the three highest in Europe. Greece is the
champion among OECD countries in terms of
taxes withheld from salaries, especially for high
earners. In the case of a worker with two children,
withheld taxes exceed 44%, without taking into
account the recent increase in the solidarity con-
tribution. There are also many taxes on taxes.
This happens in many cases, for instance mobile
telephony (VAT on the special tax), heating oil,
petrol, diesel, cigarettes, as well as incomes.
There are even taxes on zero incomes, for exam-
ple the trade tax, the Unified Property Ownership
Tax (ENFIA), or the tax on imputed incomes.
Tax evasion
When household income stands at 153.2 billion
euros (excluding payment in kind) and taxable
household income stands at approximately 74 bil-
lion euros (generating income tax and solidarity
contribution revenues of 8.7 billion euros, or an
average tax rate of 11.8%), it is obvious that tax
evasion remains huge. Therefore, the tax meas-
ures not only brought recession, but caused the
“gray economy” to expand.
As a result of the rise in tax evasion, tax revenues
were reduced in 2015 for a fifth consecutive year,
despite the measures. There is not a single
“Memorandum year” that did not see an increase
in tax rates, a contraction of declared incomes
and the tax base, and a drop in tax revenues.
