A view of Greece from the Outside - Commentaries and Opinions
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Wednesday, January 15, 2014
The Odious Aspects of Greek Austerity
Below is an interesting listing of items which make the Greek austerity so much more odius than the Cypriot one, according to the author of this article:
Greece applies a so called crisis levy on profitable
companies for 4 years to generate 600mn in additional revenue. That by and in
itself is nothing less than the proverbial shot on the foot. Greece raids
companies generating profit forcing them to pay over and above the 25% tax
(which they normally paid), a disincentive to businesses discouraging them from
investing in Greece or expanding their operations there. It is little wonder
that huge Greek companies such Coca Cola-3E, Viochalko and FAGE have fled
Presumptive Tax, in a nutshell taxation on income is
not based on normal accounting practises but on assumptions made by the
country’s tax authorities. Tax authorities estimate how much tax is owed by the
taxpayer based on a number of criteria (see link above) without waiting for the
taxpayer to declare income.
It is unfair for a number of reasons. Assume 2
farmers growing wheat, they each produce on average 75 tonnes of wheat per year
while the fields’ full capacity is 100 tonnes. One farmer has an exceptional
year and produced 80 tonnes of wheat the other just 70 tonnes. By applying
presumptive taxation the 1st farmer will pay tax on 75 tonnes (instead on his
produced 80) while the other will also pay tax on 75 tonnes (instead of his
As I searched through the literature I found that
presumptive taxation is applied in countries where there is wide spread tax
evasion and tax corruption (admittedly Greece fits the bill on both accounts),
but that doesn’t make presumptive taxation any less unfair.
Move services from the reduced to the standard VAT
tax rate. Now this is a big one and it is still a contentious issue in Greece.
The effect was that tourism related businesses (restaurants hotels) now charged
21% VAT instead of the reduced rate.
Increase tax on wages in kind. Assume your employer
gives you a car allowance (or a car) phone allowance etc. Greece taxes you on
Excises on non alcoholic beverages, this is my
favourite one. They even taxed soft drinks!
Reduction in public consumption and public
investment. Admittedly reducing what one consumes is the quintessence of
austerity however in Greece’s case that translated into delaying payments to
suppliers scarcity of even the most basic items in hospitals such as syringes
and bandages and even iodine .
Means Test Unemployment Benefits. A means test
implies that the applicant for unemployment benefits will be scrutinised by
authorities to ascertain whether he (or his immediate family) have the means
necessary to sustain him (savings, property etc) . In the event they do then
the applicant is rejected. This is particularly strange since it involves huge
administrative costs; also the means test for unemployment is alleged to create
a poverty trap. Under normal circumstances unemployment benefits aim to cushion
the blow from the loss of income, so that the applicant does not slip into
destitution. The means test unemployment benefits regime forces the unemployed
to sell/divest any property savings they may possess before they can be
eligible for the benefit. In other words the unemployed have to become
destitute before they can claim unemployment benefits.