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Saturday, November 30, 2013

Real Estate Taxes - A Morality Play?

This blogpost by Robert Danon discusses the impact of real estate taxes on the Greek economy. Without going into the merits of his arguments, my attention was caught by the following sentence:

"One of the basic pillars of Stournaras tax on property is this, that since a substantial part of the black money must have been invested in property we must tax property ownership to catch this laundered money".

Well, I must admit that I was not aware that Greek real estate taxes were based on a moral justification. I always thought the logic of Greek taxation since the crisis was a bit like: 'if you need more taxes, (a) first hit the ones who are taxed at the source because they can't hide; and if that is not enough, (b) tax the real estate because that can't be hidden'.

Now a moral justification for real estate taxes is introduced: 'if you have evaded taxes and bought real estate with the proceeds, it is only fair for the state to get some of that real estate back'. Makes sense on the surface. But how can such a moral principle be implemented in a just way?

When I own a house and take out a mortgage, I have a 'private property' and 'private debt'. If I can't pay my debt, it seems legitimate that my lender takes away my property.

However, when I have private property but no debt, my private property is indeed private property. Whoever takes it away from me is interfering with the principle of private property.

My sense is that, if the real estate taxes were indeed based on the above moral principle and nothing else, there would have had to be very selective implementation. An implementation which assures that one hits those who deserve to be hit but not those who don't.

One way to do this would be to verify in each individual case how the real estate was financed. If it could be proven that it was not financed with 'black money', one should not try to get some of it back via new taxes.

Just thinking how much of an administrative effort this would entail leads me to believe the government most likely followed the following logic: 'let's tax real estate because we need the money and afterwards we build a nice narrative around it!'

2 comments:

  1. This "moral justification" was first reported in the greek press as brought up by troikans in Athens more than 2 years ago, together with the justification of "in Greece you have very high rate of house ownership compared to northern europe".

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  2. The first proposal which Stournaras made before a 8-9 months was to tax real estate according to the value of real estate assets. E.g you have assets valued at 1 mil you pay 1 % of total value each year,so 10.000. If you have one asset valued 200.000 you pay 0.1% or 0.2 %
    But objective values of assets are those of 2007 when market was performing very well. Today values are decreased more than 40%, so owners are poorer.
    This plan was rejected at no time.
    The first tax was THE MOST FAIR TAX. (Troika has any instict or common sense to accept the right?)
    The new tax is much better for those with more assets, but still are obliged to pay more. Only to remind during 2000-2010 9 to 10 houses bought over 500.000 € were coming from not taxed income to the source.
    Is it fair those who have only 1 asset to be taxed proportionally
    with those having 5 real estate assets ?
    All market specialists are against Stournara. In an economy with many problems who should pay more, especially when many can't pay loans 100 or 200 for buying one house only?
    All these in a country with no land registry or real estate authority to know the identity of every taxpayer.

    MS

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