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The Circle Bastiat

Why are Greeks not paying their taxes?

It's estimated that 20 to 30 percent of Greek GDP is underground and the government may be losing up to $30 billion a year to tax evasion. Why aren't Greeks paying up?

By Douglas FrenchGuest blogger / May 3, 2010

Demonstrators protest against the new economic measures during a rally in the northern Greek port city of Thessaloniki, as seen in this photo taken Sunday, May 2. Greek Government has outlined harsh spending cuts and tax increases necessary to free up billions of euros in a joint International Monetary Fund and eurozone rescue for the debt-ridden country. A new report shows many Greeks don't pay taxes, costing the government up to $30 billion per year.

Nikolas Giakoumidis/AP

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The New York Times reports that many wealthy, high-earning Greeks are not reporting their income. It’s estimated that 20 to 30 percent of Greek GDP is underground, and “the government may be losing as much as $30 billion a year to tax evasion…” Like it was the government’s in the first place.

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So in an enlightened country like Greece, why aren’t its citizens happily paying up? Well, first of all there is that Value Added Tax (VAT) of 21%. But there wasn’t enough of VAT to float the Greek government boat, so income tax rates range from 15% to 40%. And at 30,001 euros (which turns out be just less than $40,000), the rate is 35%, below that the rate is 25% down to 12,000 euros.

The Times reports, “When tax authorities recently surveyed the returns of 150 doctors with offices in the trendy Athens neighborhood of Kolonaki, where Prada and Chanel stores can be found, more than half had claimed an income of less than $40,000. Thirty-four of them claimed less than $13,300, a figure that exempted them from paying any taxes at all.” Well, what do you know.

“Some of the most aggressive tax evaders, experts say, are the self-employed, a huge pool of people in this country of small businesses,” writes Suzanne Daley. “It includes not just taxi drivers, restaurant owners and electricians, but engineers, architects, lawyers and doctors.” One wonders if it has anything to do with:

Greece Social Security

* The employer’s contribution is 28.06% of the salary. The employee’s contribution is 16%.

* A self-employed person makes payments to social security himself.

* The insurance covers pension, unemployment and care insurance.

The Greeks get their health care from the state. But, if a patient wants more attention than Greekcare mandates, “Greeks routinely pay doctors cash on the side, a practice known as ‘fakelaki,’ Greek for little envelope.”

The citizenry won’t stand for knowingly being taxed into complete poverty. That’s where the central bank comes in to paper over these problems. Greece doesn’t have that luxury. So its leaders are promising the EU and the I.M.F. they’ll be good and lower their budget deficit.

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