Tax Hikes Backfire, Greece’s Revenues Plummet

Despite big tax hikes as part of austerity measures demanded by international lenders, tax revenues fell precipitously in January, with the Greek Finance Ministry reporting a 16 percent decrease from a year earlier, and a loss of 775 million euros, or $1.05 billion in one month.
The government took in only 4.05 billion euros ($5.47 billion) in tax revenues in January, far short of its target of 4.36 billion euros ($5.89 billion), a $420 million shortfall in one month, and during an annual holiday sales period for shops who are bleeding customers and shutting down by the thousands.
If Greece fails to meet revenue targets it will trigger a correction clause at the end of each quarter of the year, setting off automatic spending cuts except for pensions and salaries. That could further harm already-depleted government services.
Finance Ministry officials attributed the decline in tax revenues to the drop in consumption, as revenues from Value Added Tax (VAT) shrank by 15 percent, while those from the special consumption taxes were also lower. Greeks hammered by big pay cuts, tax hikes and slashed pensions have cut back spending even on essential items, with supermarket sales falling 500 million euros, ($6763 million) in 2012.
The numbers could have been worse as the government gained revenues from doubled property taxes and big hikes in income taxes that have hit most Greeks except for tax cheats who continue to largely escape sacrifice or prosecution.
Direct tax revenues increased by about 9 to 10 percent in January compared with a year earlier. Given the country’s devastating recession, which has created a record 26.8 percent unemployment and is in its sixth year, the only options left for the government is to collect from tax evaders and improve tax collections, although tax hikes have led to many more Greeks trying to hide their income, statistics showed.
The Troika and other EU countries offered to help Greece collect taxes but little interest has been shown by the government. The new General Secretary for State Revenues, Haris Theoharis, plans to meet directors of the 36 biggest tax offices in the country to study ways of collecting expired debts, according to proposals by the country’s creditors and the European Commission’s Task Force for Greece.
Expired debts have topped 56 billion euros, ($75.8 billion) including a jump last year of 13 billion euros ($17.59 billion) more. The newspaper Kathimerini reported that the Financial Crimes Squad (SDOE) is in disarray, doing little else than checking anonymous allegations of non-payment of taxes and not doing active investigations of high-profile cases.
The government tried to offset the bad news with a report that, thanks to austerity, the country’s deficit had fallen from 9.4 percent in 2011 to 6.5 percent last year. The ceiling set by the Eurozone, the 17 countries that use the euro and of which Greece is a member, is 3 percent.