Some Positive Developments in the Greek Tax System

There have been a number of highly positive developments in the Greek tax system lately which have unfortunately been overlooked or misunderstood by the press and other commentators. It’s worth taking a look at some of these, and also to try to understand what the underlying drivers of the situation are.

The fundamental problem with Greece’s corporate tax policy is not so much the level of taxes (more on this later), as it is three related issues:

a.       Despite the tax burden paid by companies and individual workers, the quality of public services is low in critical areas such as public healthcare and education. Since the state retains a de facto monopoly in these areas, the average taxpayer understandably questions why s/he should pay taxes. Besides this monopoly, there is plentiful evidence that suggests that tax evasion occurs due to purely personal, selfish reasons. Whatever the case, this leads to a situation where, depending on which report you read, between 20-40% of the GDP remains in the “black” or “grey” sectors, and is therefore untaxed.

b.      A major share of the responsibility for the poor quality of public services is, in turn, the fact that the public sector is grossly underfunded, primarily because Greece taxpayers do not pay their fair tax allocation. Greece’s per capita spending on healthcare or education, or share of spending as a proportion of GDP, are among the lowest in the European Union. In terms of average salaries, the wages paid by the public healthcare and education system in Greece are also far below what a living wage would be.

c.       The lack of efficiency in resolving issues related to licensing or approvals from the public sector, which is often referred to as “red tape” or “bureaucracy.” While this is undoubtedly higher than we may wish, it is a fact that this is far lower than many other EU countries, and usually far cheaper to deal with. Nevertheless, it remains a major disincentive to business activity and investment in Greece.

The result is something of a vicious circle: successive governments invest in public education and healthcare (both in terms of capital investment as well as operating expenditure, e.g. salaries). But these investments are not financed through sustainable public spending, but by debt spending. In the meantime, the large majority of independent professionals and companies systematically under-report its true income, thus avoiding taxes. At the same time, they availing themselves of at least some public services, thus incurring public expenditure which cannot be met by public revenue.  

For those readers interested in a brief comparison of tax rates, I consider that the problem is not so much corporate or individual income taxes, which are roughly in line with main European norms, but the social insurance taxes. At a combined rate of over 44% for employer and employee, the main social insurance tax under IKA is far too high compared to equivalent rates in Europe. It is a major barrier to legal employment, and a main reason why salaries are kept artificially low, why there is high unemployment, and why there is a large share of “grey” market unemployment.

Table 1: Main Direct & Indirect Taxes for a Limited Liability Company

Tax Type	United Kingdom	Greece	Cyprus
Corporate Income Tax	21%1	20%	10%
Payroll Taxes2	23%3	44%	16%
VAT4	20%	23%	15%

Notes

1.        The rate of 21% applies to companies making profits of up to UKP 300,000. Profits from UKP 300,000 – 1,500,000 are taxed at 28%.

2.        The payroll taxes listed include employer and employee taxes.

3.        The UK rate is extremely complex to calculate: the UK rate listed here is based on a salary of EUR 32,000 per year.  

4.        For VAT, the question is not only the tax rate, but the speed of VAT refunds. In Cyprus, VAT is refunded quarterly. In Greece, it is refunded annually, and given the economic crisis there are major delays with refunds – over 18 months on average.

To Greece’s credit, a reform introduced by Minister of Labour Louka Katselli foresees a gradual reduction in the social security rate. This would, in my opinion, constitute a major incentive for employment and business development. It remains to be seen how exactly this will be applied, but it is sorely needed.

There are also a range of tax incentives which many readers may not be aware of. For instance, a business owner who declares only dividends from his or her personal work in a company (in other words, declares no salary) is exempt from the 25% dividend tax. This is a major incentive which is not found in UK, German or French income tax law.

It remains to be seen exactly how far future tax competitiveness will become in Greece. But I would like to reiterate my main point: the main issue involving taxes in Greece are:

a.       The fact that many, if not most, independent professionals and companies in Greece do not pay their fair tax assessment. As a result, the government has been forced to raise indirect taxes (such as VAT and fuel taxes), which hurt all consumers.

b.      The fact that in particular, social security taxes are a major disincentive to employment and to the provision of living wages by employers.

c.       The fact that the quality of public services remain low, for reasons both to do with the absolute level of investment (due in no small part to low tax collection), as well as due to political patronage and other issues.

There are obvious solutions to these issues, and it is a major test of political will, strategic planning and operational implementation for the government. But it deserves the benefit of the doubt as it begins this process, and it would be of great national benefit to the country if most companies and individuals to take a real look at their own income and their own personal responsibility for the present situation, and take corrective measures.  

January 1st, 2011

My first purchase of 2011 occurred in the Superfast XI Ferry bar on 01.01.11 at 7:21. I ordered and paid for a cappuccino, costing EUR 3.15, with 0% value-added tax, presumably because we were already in international waters. The bar is empty—the lounge silent except for one TV transmitting blurry images of Italian morning shows at the far end of the room. Outside it is still dark. Inside, it is quiet, as the roughly 150 passengers sleep off last night’s revels.

This anecdote captures both the benefits and costs of globalisation as we know them in Greece and perhaps elsewhere in this 11^th year of the third millennium AD. Today, we can travel on New Year’s Day in a well-outfitted, comfortable high speed ferry to Italy. It is an early morning normality to order a cappuchino from a menu listing exhorbitant prices and the forced enthusiasm of two badly-dressed but hip members of the younger generation brandishing Coca Colas.

This extraordinarily material sense of affluence and convenience was unimaginable only 10 years ago. In 2001, Greece entered the Eurozone. Prices switched from Drachma to Euro inflation fell from the 18%+ to a more manageable level (at least theoretically). Ten years before that, in 1991, the ferries to Italy were exercises in discomfort. Laptops, Wifi and cappuchino were unknown. A trip of this sort would usually mean making friends with a group of travelers at the bar. The waiter would probably have been shabby, unshaven and chain-smoking cigarettes; while the toilets would be stinking into the corridors.

If I were asked to clarify the difference between 1991 and 2011, I’d have to say that in 1991, our world was somehow still new. The vast range of comforts and conveniences we enjoy today were less pronounced; the sense of a share national identity and spirit were much stronger. The vast wave of immigration from the collapse of Albania and the Soviet bloc had not yet begun. Greece was a much more ethnically homogeneous place: language was the passport, the shared sense of identity which differentiated Greek from foreigner. Foreigners were not despised or feared. “Where are you from” was typically the first invitation a Greek extended to a stranger. The sense of adventure was stronger: we had less, but were no worse off for it. It was a brave new world.

Fast forward 20 years, and Greece has changed, as have we all. We aspire to creature comforts but often shun human contact, except with those people we know. The sense of spontaneous mixing which would have occurred on a voyage on New Year’s Eve is gone: people stick with whom and what they know, rather than taking the social risk of speaking a common language with strangers, even of the same social class. Our social interactions are stratified. In the past, one could expect the bar man to launch into a soliloquy on Greek history. Today, his role is to serve the coffee and disappear.

In this, I sense that we have achieved a form of convergence with the West. For those unfamiliar with this European Union term, convergence describes the increase of living standards between the newly-joined countries of the European periphery compared with those of the 6 core EU founders, expressed primarily in terms of GDP per capita. We have indeed converged, although the moving target that is GDP growth means that the 6 core countries have continued their development, and today remain far ahead in areas such as social development, public services, private sector careers and education. Our convergence has been one of the poor relatives joining the party, only to find that the sophisticated set have fled the hotel ballroom for a private party far away.

The convergence has been much more pronounced in terms of social attitudes. In the brutal social and political upheavals of the 1990s, over 1 million uneducated and often starving immigrants flooded into Greece. Society, perceptions and attitudes changed massively as a result. This process repeated itself again in the first decade of the 2000s, with the added wrenching change of an explosion in information technology, communications and media which destroyed Greek traditional values forever.

Today, I believe that we have become something like a limited form of suburban America in the 1950s. I say the 1950s, because in Greece we are clearly before the socio-political upheavals of the 1960s, and long before the integrationist 1990s, which made it possible, in 2009, for an African-American of racially mixed marriage to become President of the United States.

The dream of our middle-aged middle classes in Athens today is a three-storey maisonette in Halandri or Vouliagmeni. We aspire to a secure but unchallenging job which allows us the means to accumulate a middle-class lifestyle and enough money to enjoy a vacation on Mykonos. The fierce, breathing idealism which allowed a society to survive the brutal Nazi occupation and the collapse into equally brutal civil war has been replaced by a sense of bourgeoisie vulnerability. Let them riot in Syntagma, but keep the stores on Ermou open. Let them rage against the system, but don’t interfere with my ability to meet my monthly mortgage payments.

We view our Georgian cleaning ladies or Pakistani street buskers as symbolic aliens, to be interacted with as minimally and antiseptically as possible. Social justice, yes, but for the white, ethnically-Greek class. Equality has been defined as a financial transaction rather than a sense of shared humanity.

In writing these observations in an empty ferry lounge, I conclude that today we have become very similar, if not indistinguishable, to the white middle class most other European and North American countries. For a country which still prides itself on its humanity (ανθρωπία) and hospitality (φιλοξένια), and who’s past exemplifies the summit and the depth of human achievement, such a revelation will no doubt be disappointing.

We are no longer an ‘Εθνος, or single ethnicity: today we are just another multi-ethnic European country, characterised by the familiar problems of immigrant integration, growing social stratification, increasing child obesity, illegal immigration, religious equality, and a host of other symptoms of a society in change.  

The sooner we recognise this and come to terms with it the better. There is no going back to an imagined past where everyone spoke Athenian Greek and attended Church on Sunday. The village priest is no longer the arbiter of rural life; Aliki Vougiouklaki no longer stars in black-and-white films with happy endings. We must make a wrenching mental adjustment, and by we, I mean both the diaspora Greeks who retain an image of an idealised past, as well as the Greek middle class which determines the political life of this country.

We must build a society where fundamental equality before the law drives social mobility. Where anyone talented or hard-working, whether their parents came from Trikala or from Tirana, is able to succeed without discrimination and hindrance, providing they obey the laws. Where a career in government is no longer the sinecure of the past, and where politicians are no longer objects of veneration, but ordinary individuals fully subject to the law.  

Where the university is no longer about the title of your degree, but about the extent of your learning, and your ability to evolve in a fast-changing, challenging global economy. Where a Muslim or a Jew or a Hindu can worship with dignity in his own church, be married by his own priest, and be buried in his own graveyard, just as a Christian can.

Where the past is honoured, but not revered or worshipped at the expense of the future. Where we all understand that we live in a fluid present, and that 10 years from now Greece will have changed all over again. Where extraordinary social and political stagnation is a recipe for disaster, such as the one we find ourselves today. 

Most of all, a society which favours the young and the future. Without investing in the current generation in school, as well as the generation which has just entered the workforce, we have no future.

I firmly believe these changes are within our power to make. They are found first and foremost not in any new laws or budgets, but in our own hearts and values. There is no cost to making them, apart for the cost of challenging our own stereotypes and preconceptions, and the cost of investing a little bit more time and energy caring for the people and environment around us. We have everything to gain from this, and nothing to lose.

As this ferry plows the seas towards Ancona, our destination, I reflect that life itself is a journey, where the only sure thing is that no sooner do you arrive in one place than it’s time to leave again. I hope that in this year 2011, this journey for all of us will be cherished and loved for its intensity, its fair weather and foul, and for the destinations and the friends we will reach along the way. 

Finding the Loch Ness Monster: The Continuing Search for Higher Educational Reform in Greece

Lost in the furor of the general strikes and public reactions against the IMF-led financial rescue package has been the fate of the government’s attempt at higher educational reform. Educational reform is something like the Loch Ness monster of Greece: people have been searching for it for decades, but they have never actually seen it. Every government revisits the issue: Studies are commissioned, consultations are held, laws are passed--yet the problems continue, while Greece continues to lose ground in international comparisons of higher education.

The latest round of tertiary-level policy initiatives by Minister Anna Diamantopoulou build on past attempts by Minister Marietta Giannakou, and include some noteworthy initiatives such as ending (really, this time) the problem of eternal students, devolving decision-making authority to universities and possibly closing or merging university and higher vocational education and training (VET) institutions and/or departments. These are worthy initiatives, but I feel that any solutions they may bring will only temporary, since the core issue of competition, student focus and the public monopoly on higher education is not resolved.

The Greek higher education system is based on the public monopoly on higher education in a variety of ways:

·     The Greek government (via the Constitution) did not, until May 2010, recognise graduates from private post-secondary educational institutions in Greece. There are no fully-functioning private universities in Greece accredited by the government at the tertiary level. The 10 “private” universities which do exist usually specialise in certain limited areas (usually in the liberal arts), and are usually based on provision of foreign degrees. They face continual problems with state validation of teaching staff, curricula and diplomas. Ironically, the Greek government does recognise the diplomas of foreign private universities, while it also permits secondary and primary private education within Greece.

·       The Greek government is responsible for nearly 100% of funding to state universities, which are not allowed to officially charge for tuition or materials. It does not provide any financial support to the private post-secondary, non-tertiary institutions it has recognised.

·      The non-temporary staff in the state system have the status of permanent civil servants. For all intents and purposes, they cannot be fired for any reason except possible criminal behaviour. A large number of temporary staff have been hired to cover shortfalls due to poor performance of the permanent staff. These temporary staff face payment delays, job insecurity and the constant threat of contract termination every time the government changes.

There have been any number of studies from both sides of the political spectrum which testify to the inefficiency and waste of university operations and learning outcomes, which I do not want to repeat here. Interested readers can consult various CEDEFOP and Eurydice studies on higher education, international rankings, the various Lisbon Agenda and Bologna studies carried out by the European Commission, and various reports implemented by the ND and PASOK governments over the past 10 years.

What I would like to do instead is to focus on the fundamental unfairness of the public monopoly on education, and the detrimental effects this has on society. While proponents of free public education claim that a public monopoly is necessary to assure for social justice, the actual record of such a system in Greece leaves much to be desired. Its defenders cannot account for the regular destruction of university property, the low or variable quality of lectures and teaching,  the high class sizes, the abysmal management (many universities apparently do not even know their own enrolment), the sub-standard facilities, the problem of eternal students, etc.

In such a climate, it is also irresponsible to speak of more funding being the solution. There is absolutely no guarantee that reaching the magic number of 5% GDP invested in education will make any difference whatsoever, beyond propagating and exacerbating inefficient and illogical practises.

I would therefore like to suggest the following proposals for the higher education system, which I believe are the only method of addressing the issue of quality in higher education in Greece. These are as follows:

1.     The state monopoly on higher education must end. Each university or vocational training institution which so desires should become a self-managing, legally-independent organisation responsible for its curriculum, staff hiring and firing and enrolment. Those that do not desire this should be closed. Exceptions can be made for a few institutions considered vital for national reasons, such as defence / military-related, fire and police academies.

2.      The state’s role in providing financial resources should switch from funding institutions to funding student enrolment. This funding should be prepared using a lump-sum calculation based on courses of study (e.g. a chemistry major may require higher funding than a literature major). The funding should be paid to the institution based on the number of students enrolled (subject to a maximum cap on student funding and places). The funding will only be available for a studies up to an including a masters’ level, in line with the minimum (not maximum) number of years foreseen per specialisation, e.g. 3-4 years for a bachelor’s and 1-2 years per master’s degree. A separate provision should be made for doctoral and postgraduate work. A limited number of scholarships should be available for international study.

3.      Public universities will be able to levy tuition on students. This should be capped at a logical rate (e.g. EUR 2,000 per year), but grow in line with economic conditions and market competition. A set number of scholarships should be offered based on full or partial scholarships for means-tested families. Scholarships should include a mix of loans, work-study, and grants. Tuitions charged to non-residents of Greece can be set to market rates.

4.     This funding mechanism should apply to enrolment at all accredited “private” (i.e. non-state) and “public” institutions in the country. The difference in status should become one of for-profit and non-profit education, where the former is characterised by a company where profits can be distributed as dividends, and the latter by an institution where 100% of profits made are re-invested into the institution. For-profit education should fall under the standard tax code. Non-profit educational institutions should not be taxed. State funding and scholarships should only be available for enrolment in non-profit educational institutions.

5.   All value-added tax (VAT) on higher education services which comprise study (or provision of study) in full enrolment at a non-profit institution should be set at 0%.

6.   The financial foundation of the new educational institutions should be strengthened by the legal transfer of land, buildings and other assets already in their possession, as well as by the potential transfer of additional state assets (primarily real estate), to form an endowment for future operations.

7.    All educational institutions—and the government—should immediately end the practice of owning and operating student dormitories at no cost to the students. If the cost of housing is an important part of student costs, then either:

• This cost should be covered by scholarship grants or loans or work-study, or
• A stipend should be added enabling the student to rent suitable premises.

In any case, the true financial costs and benefits of student housing (or stipends for housing) should be clearly recorded and understood by all parties involved. Housing benefits should only be provided for the minimum study term: eternal students or students who have finished their study should vacate the premises and make room for actively-enrolled students.  

8.   The government should immediately drop its constant war against the private sector in higher education, and recognise that:

• As taxpayers and legal entities, private companies have equal rights to state companies in the provision of educational services in Greece and the European Union;

• It is morally indefensible to retain a government de facto monopoly in the educational sector given the Greek experience and record in this sector, and given that private taxpayers (either in Greece or the EU) are required to pay for this.

9.   All educational institutions are acknowledged to be self-managing institutions. Decisions on staff performance assessment, staff retention and development, compensation, hiring and firing and other issues is left to the discretion of each institution, but must be based on a professional and transparent code of conduct and operating procedure. The staff working in these organisations should be removed from the list of government employees. The staff “managing” the tertiary sector in the Ministry of Education and its agencies should be refocused and reduced accordingly.

10.  All educational institutions are allowed to raise money for capital expenditure endowments through fundraising. All institutions are allowed to carry out revenue-earning work for non-state employers, providing that this revenue is properly accounted for, and that this does not detract from the core educational mission of the institution.

11.  EU funding absorption should be maximised, with the objective of sending every student outside Greece on an Erasmus or similar scholarship for at least 3-6 months of his/hear career. Further absorption should be used for staff training and exchange, including voluntary rotation within Greece as well as internationally.

12.  A separate accreditation body for higher education institutions should be established, comprising, representatives of educational institutions, employers and other social partners. This should be legally independent and insulated from the corrosive effects of political interference.

13.  Every institution receiving public money will be expected to be manage itself transparently and in line with standard, international professional competency. It will be subject to a full audit each year by at least two organisations:

• A private, internationally-recognised audit firm
• The state audit commission

We strongly recommend that the EU Auditor audits the use of all EU funding in Greece as well on an annual basis. All audits will be published online. Cases of fraud or mismanagement of public funds will be prosecuted quickly to the full extent of the law, and will resulting criminal and civil charges against the individuals committing the crimes. Conviction may also result in a reduction of public expenditure to the institution.

14.  In addition to auditing the use of public funds, the role of the auditors should be to advise on issues such as valuation of land and assets as well as leverage ratios. It is strongly recommended that a medium-term legal cap on borrowing be implemented for each institution to assure it self-sustainability. This cap should be in place for at least 10 years to avoid the syndrome of high debt taken by public and semi-governmental organisations in Greece.

15. The pan-Hellenic university entrance exam should end. This has an important impact on secondary education, which is currently gravely distorted by two phenomena:

• Teaching for the pan-Hellenic exams rather than for the student
• The excessive institutionalisation of cram schools (frontisteria).

There are two potential solutions for university admissions:

1. A pan-Hellenic standardised exam which includes two tiers, basic competencies (mandatory), and specialised knowledge (optional), be implemented. This would be used in conjunction with other admissions criteria.

2. Each university implements its own transparent admissions process.

The fear is that in the latter case, political and financial connections may assure the entrance of well-connected individuals. Unfortunately, given that the pan-Hellenic exam preparation process has also become a process driven by money, it does not seem that the current system is doing any better. Despite this, the distortions on secondary schooling remain.

16.  Each institution is allowed to choose how many campuses or departments to have, whether to invest abroad or in Greece, whether to open multiple campuses, whether to offer many degrees or whether to specialise (e.g. business schools, medical schools). Each institution is able to define whether it will provide vocational or academic degree tracks, providing of course it meets the national curriculum standards in each area.

17.  All ecclesiastical education and training should be immediately devolved. If government funding is to be available to higher or vocational education in religious institutions, then it should be on the same funding basis as other institutions, but should be equally available to the religious institutions representing all religions, not solely the Greek Orthodox religion. There should be a total separation of Church and State in education.

18.  University asylum must end. Every institution can either pay for its own policing, or rely on the standard forces of law and order in certain or all cases. Theft and other criminal acts should be fully prosecuted by the law: students and staff who commit such acts should be expelled.

These proposals are radical in nature, and are not likely to be acceptable to the majority of university administrators, staff and possibly students. Unfortunately, I do not see any long-term alternative. Unless we want to accept continual “reforms” of the system every four years or so, and a continual decline in educational quality, we must sever the connection between the politically-dominated educational policy-making and management process, and the management of higher educational institutions.

This will also be of utmost benefit to the institutions themselves. We know that in order for them to succeed, they must internationalise as rapidly as possible, developing alliances with European and other universities, investing in new facilities, rewarding their staff properly, and developing spin-offs and endowments. If a devolution of the kind I propose occurs, we should be ready to transfer up to EUR 500 million of state land and assets to each institution, assuring it of the means to operate independently. (The Greek government has recorded assets of over EUR 300 billion, most of which is mismanaged. Total government income from these assets amount of less than EUR 50 mln per year).

We also know that given the tremendous debt burden hanging over Greece (itself a product of gross public sector mismanagement and political corruption), there is practically no chance for a real investment in higher education to occur in any other way. To thing otherwise is to dream.

It may be necessary to split such a reform into phases over 10 years: calling for a first wave of volunteers and allowing them to operate for 5 years to see the results. But unless the system changes, the chronic issues of mismanagement and declining standards will continue, while the long-term damage to the society grows. 

(c) Philip Ammerman, 2010

The Parody of Political Protest in Greece

The elusive logic of the political situation in Greece is perhaps best illustrated by a single event: Every November 17^th, a march occurs on the US Embassy in Athens to protest the US support for the military dictatorship that ruled Greece from 1967-1974. The march is held on the anniversary in which the dictatorship’s military forces entered the Polytechnic University and killed 24 civilians in the process. It is usually attended by at least 10,000 participants, and inevitably degenerates into violence, with masked youths trying to break a police cordon and stone or burn the Embassy.

The fact that this march continues every year illustrates that while Greek protesters have been remarkably effective at channeling their anger against foreign enemies or conspiracies, they seem much less ready to take on the vested political interests that have brought the country to what is widely and euphemistically referred to as a dictatorship of the troika, or a loss of sovereignty.

Today, Greece is confronted by at least EUR 340 billion in debt, which is rising at a rate of at least EUR 15 billion in interest costs alone each year, and will increase in 2011 as higher bond spreads take effect. Unemployment has reached 12.4%, a historic high. Pensions and wages have been cut, and the vast state apparatus is slowly being reformed, with tremendous human costs.

At the same time, we are broadly aware that a small minority of political families and companies have been responsible for the vast corruption in public contracts and wider public spending in this country. Their names are fairly well-known, and if specific evidence is needed, an objective investigation into cases such as Siemens, Vatopedi, Skaramanga, OTE procurement, military procurement, pharmaceutical procurement and hundreds of others would quickly reveal them.

For instance, we know that a former Minister of Defence has been implicated in purchasing a luxury house in central Athens from a Cypriot offshore company. This property was valued at a fraction of its market price. This individual goes unpunished. The case is even more remarkable since by most estimates this person’s fortune gained while in office is likely to be two orders of magnitude higher than that published sales price.

Today, we also know that according to Eurostat, Greece has actively falsified or mismanaged its economic statistics and engaged in various financial transactions which proved detrimental to the Greek economy for at least three administrations. None of the high-ranking officials have faced criminal or civil charges, Parliamentary censure, loss of privilege or any other measure.

Today, we know from Germany investigations in that bribes paid to Greek political parties in the Siemens and Skaramanga cases amounted to hundreds of millions of Euros, and we can assume that the conduits for this bribery—the Hellenic Telecommunications Organisation and the armed forces—should rapidly implement a forensic audit of prior contracts to determine additional sources of corruption. This is not being done.

There are hundreds if not thousands of cases like this. So my question is simple. If every year we can march on the US Embassy, why don’t we march every week or every day on a different politician’s house and protest outside it? After all, we know where most of them live. You can see them drinking coffee in Kolonaki or Politeia quite regularly. If the justice system will not work, and if the political parties themselves do not act, then clearly, the citizens must.

Yes, I am sure this will open me to charges of naivety, historical ignorance, inciting vigilantism or worse. But I look at this another way. Certain political elites have managed to brainwash entire generations of Greeks that the Americans are the Great Satan (among myriad other conspiracies) while conveniently distracting attention from their own misdeeds.

Today, we are falling over each other to condemn the violence that occurred on Wednesday. Fair enough. Yet I have to ask: Which politician has every had their accounts audited properly–including their Swiss or Cypriot accounts, or those of their family members or the contractors commissioned during their tenure? Which politician has ever been fined for misuse of funds? Which politician of the generations of incompetents which rule this country has ever faced jail time or property seizure?

In Austria, the former Prime Minister Ivo Sanader of Croatia is in jail awaiting extradition due to an unexplained EUR 1.2 million in secret bank accounts. In Germany, the political giant Helmut Kohl resigned in 2000 due to suspicious party contributions of DM 2 million. Our politicians are far more venal, and have far fewer achievements to their name, yet so far none have resigned or faced prosecution, apart from Tasos Mandelis.

In ancient Athens, public figures could be fined as well as ostracised, or expelled from the city. We have no such system today. Shouldn’t the politicians that have ruined the country at least be deprived of their pensions, or face censure or civil charges?  

Prime Minister Papandreou has repeatedly promised to crack down on corruption regardless of the political cost. So far, nothing substantial has been achieved.

My feeling is this: unless a serious, concerted effort is made, and fast, the events of Wednesday will seem like child’s play compared to what may actually happen. A “Bastille Day” scenario, where a mob storms the Parliament and takes justice into its own hands is no longer an unrealistic scenario, no matter how outlandish this may sound. In the final analysis, it may be no more than what is actually deserved. 

The Uselessness of Scrappage Schemes and other Tax Policies

The Greek government has, despite its earlier opposition, announced a scrappage scheme which offers a tax exemption of up to EUR 2,800 on purchase of a new vehicle, providing the vehicle has an engine capacity of under 2,000 cc. By doing so, it hopes to generate short-term tax revenue, since a “luxury tax” of 10% on purchases of vehicles costing EUR 15,000 – 20,000 applies, as does VAT. It also hopes to generate future tax income, since vehicle circulation taxes apply every year.

The current policy is, like many others, deeply inequitable and absurd. According to the current tax system, a middle-income family of five which buys a station wagon or mini-van which usually costs between EUR 20,000 – 25,000 pays VAT and a 10% “luxury” tax for a vehicle which is hardly a luxury item.

At the same time, companies have essentially no limits on what they can purchase and declare as a company car. Thus, a company which buys a new BMW 7-series (starting around EUR 65,000) can, after paying VAT and the luxury tax, fully deduct the depreciation cost as a corporate expense. Given that VAT is often returned—at least in theory—this is something of a double insult to families and private consumers.

I therefore propose that if the government wants to gain tax revenue and equalise the presently unfair situation, it adopt a simple and transparent tax code:

a.       VAT applies to all vehicles, public or private, regardless of the vehicle cost, at a low rate of 8% for new vehicles and 5% for used vehicles.

b.      Companies and individuals (private citizens) can purchase a vehicle of up to EUR 15,000 without a further tax surcharge. Companies can book this as a maximum depreciation per vehicle, with special categories for commercial vehicles which are used for specific enterprise functions (e.g. commercial deliveries).

c.       Families with children can purchase a vehicle of up to EUR 25,000 without a further tax surcharge.

d.      If needed for the purposes of tax revenue, any vehicle purchased above these limits be assessed with a tax surcharge at the same rate, whether the purchaser is a private citizen or company. This should be based on vehicle value rather than emissions rates or engine size.

e.       Unless they fulfill a specific function, companies cannot claim depreciation for vehicles above EUR 15,000 per unit. Thus, a lawyer who purchases a new Mercedes C-Class can claim a maximum EUR 15,000 depreciation, whereas a logistics firm which purchases a EUR 125,000 Volvo Freightliner would claim 100% depreciation.

This system would have the following benefits:

·         It provides the freedom of choice to both individuals and companies to purchase a vehicle according to personal disposable income rather than to temporary incentives which distort the market and favour new imports (worsening the current account balance).

·         It provides an incentive for purchasing older vehicles (which have already been imported), leaving the current account balance neutral and making better use of an under-utilised resource. Fears that this will favour vehicles with higher emissions rates are counterbalanced by the fact that fuel efficiency of older vehicles is lower, and every consumer understands the need to minimise fuel costs with unleaded gasoline costing  over EUR 1.50 per litre.

·         It is likely to focus the market on smaller-value vehicles, which by their nature have lower carbon emissions and better fuel consumption.

·         It would end an egregious tax loophole, whereby well-off companies and self-employed professionals buy a prestigious, expensive car, and then deduct 100% of the depreciation as a company expense, further weakening public revenue.

·         It would balance the treatment of individuals (private citizens) and self-employed professionals and companies in the tax code.

In my eyes, there is absolutely no justification for a BMW or a Jeep Cherokee to be treated as a 100% tax-deductible vehicle, when it is so clearly a corporate perk. If PASOK is really interested in social equity, it should pass such as law immediately, rather than passing another inefficient scrappage scheme.