Greece: A lesson in socialist failure

Greece has become an object lesson in how not to run an economy
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The first Greek problem is that a huge percentage of its able-bodied population is not working and simply collecting state pensions. It goes without saying that Greece’s economy is in recession, and its official unemployment rate is 26.6%, something the U.S., for example, hasn’t seen since the Great Depression. But fully four fifths of Greece’s budget goes to pensions and state wages, and 10 percent of the nation’s entire economic output comprises pensions alone.

... The second problem is that Greek taxes are sky-high, killing incentives for hard work, enterprise, and industry. It seems likely that so few people are bothering to work because so much of their income is sacrificed to other people’s pensions and government wages. The IMF’s Rice pointed out that "[t]he policy of increasing already-high rates on a low tax base again is not sustainable. It is critical to significantly broaden the tax base." Rice did not point out that the tax base is broadened only by more people working in the private sector, which itself can be accomplished only by lowering the tax rates.

Comment: Image source and license information. See also: Greece struggles to address its tax evasion problem

The new government of Greece, led by Alexis Tsipras, has promised to tackle tax evasion. It hopes this strategy will yield €3bn ($3.4bn) in the coming months in order to cover part of the cost of its €12bn Thessaloniki anti-austerity programme. This would entail various measures – a gradual increase in the minimum wage to reach €750, an extra month’s income for pensioners receiving less than €700 a month, and various welfare benefits – to help the most vulnerable members of the community. “If this government thinks it can change the system in a few weeks it is underestimating how complicated it is to collect tax in Greece,” says Haris Theoharis, narrowly elected to parliament for the centrist To Potami party. Between January 2013 and June 2014 he was secretary general for public revenue, a job imposed on the then conservative New Democracy government by the country’s creditors, increasingly irritated by slow progress against fraud and tax dodging. “In Greece more than two-thirds of the population – private- and public-sector employees – pay tax in the normal way, because it is deducted at source,” Theoharis explains. “The problem is that it’s still too easy for contractors, people in the professions and some big companies not to declare all or part of their earnings.” He claims the state misses out on between €10bn and €20bn in revenue. Direct and indirect taxation should bring in an average of €50bn a year.