Tax in­creases have not worked

Com­mis­sion data show it is only the re­duc­tion of state ex­pen­di­ture that has helped re­duce the bud­get deficit

Kathimerini English - - Focus - BY PROKOPIS HATZINIKOLAOU & SOTIRIS NIKAS

Since 2010 Athens has in­tro­duced rev­enue-boost­ing mea­sures worth al­most 37 bil­lion euros in to­tal, but the re­sult is quite dis­ap­point­ing, as the Euro­pean Com­mis­sion’s of­fi­cial data show that state rev­enues have de­clined by 9.2 bil­lion euros in the same pe­riod.

In to­tal the Greek gov­ern­ments of the last six years have voted aus­ter­ity mea­sures of 72.6 bil­lion euros through spend­ing cuts, new taxes and other in­ter­ven­tions in a bid to stream­line the state fi­nances. The mea­sures taken in the last seven years amount to some 40 per­cent of the coun­try’s gross do­mes­tic prod­uct to­day. In the same pe­riod, GDP has shrunk about 26 per­cent.

It is clear that the tax mea­sures are not fetch­ing the an­tic­i­pated ben­e­fits to the state bud­get, un­like the ex­pen­di­ture cuts, which are much more ben­e­fi­ciary for the state. The data showed that in the pe­riod from 2010 to 2016, the spend­ing cuts amounted to 35.8 bil­lion euros on pa­per, in prac­tice re­duc­ing bud­get spend­ing by 33.1 bil­lion euros.

When gov­ern­ments took mea­sures to re­duce spend­ing in or­der to con­tain the bud­get deficit, the suc­cess rate of their in­ter­ven­tions amounted to 92 per­cent, mean­ing the ef­fi­ciency of the mea­sures was cer­tain. By con­trast, the in­ter­ven­tions on the side of the rev­enues ef­fec­tively re­duced the in­come of house­holds and en­ter­prises with­out help­ing the state bud­get.

So far, no gov­ern­ment has man­aged to put an end to the vi­cious cy­cle of re­ces­sion and aus­ter­ity, although in 2014 the then ad­min­is­tra­tion came close to do­ing so. 1.0904 At the Fi­nance Min­istry they are hop­ing that 2017 will be the first year the vi­cious cy­cle will be bro­ken: They es­ti­mate that the econ­omy will grow by 2.7 per­cent and this will lead to rev­enues out­per­form­ing.

Still, next year is also go­ing to wit­ness new in­ter­ven­tions on the side of taxes – par­tic­u­larly indi­rect ones – gen­er­at­ing some con­cern over the im­pact they may have on pri­vate con­sump­tion.

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