Greece’s Shoddy Reporting System Makes Taxes Less Inevitable

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A recent article in the Economist explores a topic dear to all our hearts and that is paying one’s taxes.

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It may not have been Benjamin Franklin who first said, “‘In this world nothing can be said to be certain, except death and taxes,” he was paraphrasing Daniel Defoe I believe, but his is the quote we most frequently refer to when laboring the inevitability of taxes for the common man.

It should come as no surprise that not all workers around the world are as faithful in paying their dues as those in the US to Uncle Sam. Now, let me say from the outset, we at MetalMiner would hold to the maxim that no one has a responsibility to pay anymore tax than they are legally obliged to nor are we advocates of big government requiring high corporate and personal tax rates to support them.

The lower the state’s involvement in the everyday life of the population is generally, in our opinion, a good thing. However, a civilized society enjoying good public services such as roads, universal education, healthcare for those unable to pay for it themselves, a police force, judiciary and maintenance of the rule of law costs money and the state has to raise that money from private and corporate activity. One could argue until blue in the face about where the balance lies, but it’s interesting that although taxation was one of the principal dynamics in the creation of an independent America from British rule few major economies in the world have such high levels of universal payment.

One of the reasons, in spite of its horrendous complexity, is because the US has systems and controls to make sure earnings are tracked and payment is made, but another, more subtle reason is – because much as Americans grumble about taxes, about their government, about bureaucracy in the application of that government – they, on the whole, accept it as a necessary evil and feel it is worthwhile. There would be many that would disagree with this but compared to some parts of the world the above holds true.

Not so in Greece, according the Economist, 2 out of 3 Greek workers either understate their earnings or fail to disclose them to the taxman altogether. As a result, last year an estimated 24% of all economic activity in Greece went undeclared to evade tax and regulation, well above the European average of 19% – an average that includes countries such as Italy, which also has a rampant black market.

This isn’t a result of EU austerity, rather the predicament the Greek treasury finds itself in, with debt now at 174% of GDP and the budget deficit at 13% of GDP, is in part a result of low tax income. The low level of tax receipts is because Greece is said to have the fourth-lowest level of “tax morale” out of 26 countries surveyed. Greeks simply do not believe their taxes will be spent wisely, indeed not only do they believe they will be squandered but corruption is so endemic they believe it will disappear before it can even be spent by the state.

An overly complicated tax system and nominally high levels of taxataion also discourage honesty and encourages firms to stay small and in the periphery so they can hide activity that otherwise would be taxed. The article suggests this hinders expansion and employment by firms as lenders are unwilling to provide credit to firms that lack transparency.

Some would argue Greece has been like this for 100 years and it’s pointless to try to change it, others would say the economy will never recover unless it matches receipts to expenditure, one part of which is making sure every one and every firm pays a fair level of tax. First and foremost, government needs to look to itself, stamp out corruption at all levels, simplify the tax code and reduce tax rates. Greeks may then be more willing to pay into a system they see as functioning and fair.

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