Thu, Sep 13, 2012 - Page 9 News List

Professionals are main Greek tax evaders

A new study shows that banks, politicians and white-collar workers are largely to blame for debilitating corruption in the troubled Mediterranean country

By Phillip Inman  /  The Guardian, LONDON

Illustration: Mountain People

There is one good reason for Greece to stay in the euro: to combat corruption. The country is riddled with it and needs outside pressure and support to sort things out. Even if Greece and Greek Prime Minister Antonis Samaras could overcome the huge loss of pride and reap some of the economic benefits of quitting the single currency, they would still be left with a corrupt economy, much of which strengthens the power of unions and trade associations.

City economists tend to ignore the problem. They have arrived at the opinion that leaving the eurozone is the best, if not the only, option for Athens. Central to the argument is that an independent drachma would immediately be devalued, making Greek exports more competitive and at a stroke wiping out many, if not all, of the country’s debts.

Yet these economists ignore the challenges that beset a nation where very few people pay their taxes, public-sector jobs are secured through family ties and contracts for work, public or private, are rarely signed without someone in a position of power asking for a backhander.

As in Italy and Spain, bankers perpetuate all the worst corrupt practices.

Martin Sandbu, chief leader writer on economics at the Financial Times, recently chided the southern Europeans for not jumping at the chance to join a European banking union. He said that the loss of control over a crucial pillar of the economy to a higher EU authority was worth it when set against the chance to end the insidious and corrupt relationship between bankers, politicians and the professional classes.

It may seem conspiratorial to argue that corruption is at the heart of the Greek malaise, but it is one of the main reasons Berlin is adamant Athens has had all the help it is going to get, without evidence the cuts are going through. For German politicians, cuts to sacred state subsidies and increases in tax revenues are a crude indicator that corruption is being tackled, however tentatively.

Supporting the view that Greece is beyond helping itself, an in-depth study of Greek banks, politicians and professional workers was published last week by two economists from the Booth school of business at the University of Chicago and a Greek academic based at the Virginia Polytechnic Institute.

Interestingly, their report, Tax Evasion Across Industries: Soft Credit Evidence From Greece, which documents the hidden, non-taxed economy, blames the current malaise not on dodgy taxi drivers or moonlighting refuse collectors, but on the professional classes.

They found that 28 billion euros (US$36 billion) of tax was evaded in 2009 by self-employed people alone.

Because GDP that year was 235 billion euros and the total tax base was just 98 billion euros, it is clear that this was a significant sum. At a tax rate of 40 percent, it amounted to almost half the country’s budget deficit in 2008, and 31 percent in 2009.

The chief offenders are professionals in medicine, engineering, education, accounting, financial services and law. Among the self-employed documented in the report are accountants, dentists, lawyers, doctors, personal tutors and independent financial advisers.

The authors, Adair Morse and Margarita Tsoutsoura from the Booth school of business and Nikolaos Artavanis from Virginia Tech, were given unprecedented access to the records of one of the top 10 Greek banks. They found that when professionals approached the bank for a loan or mortgage, their tax returns showed that debt payments ate up 82 percent of their incomes. For the beleaguered tax authority, this meant their income was too low for income tax.

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