The Poverty Lie How Europe's Crisis Countries Hide their Wealth
Part 3: A Culture of Shirking Taxes
But even people who are considered affluent by the numbers do not consider themselves rich. They too feel that they are victims of the crisis, and they are worse off today than in the past. But does this mean they cannot be expected to bear a greater burden to save their country?
Take, for example, Dimitris, a resident of Crete (not his real name). He's a post office employee, his wife works in university administration, and both have been public servants for decades, which gives them secure incomes and small pension claims, although those benefits have been cut substantially since the debt crisis hit Greece.
Dimitris, his wife Maria and their two teenage sons live in a condominium in the administrative capital Heraklion. They also own a building in the southern part of the island with a small owner's apartment and 12 guest rooms that are rented out, a small but clean building with a view of the water, directly on the beach. The mother lives in a small house that she owns in the nearby village. The road to the village passes Dimitris's olive groves and fields of orange trees.
Now that he is close to retirement, Dimitris devotes most of his time -- including his working hours -- to the trees, which he grows organically. Dimitris and Maria are not doing well, subjectively at least. "Our costs are too high," he complains, after maneuvering one of his three cars into a parking space at the beach. "Just imagine. Now we have to pay taxes on all three properties and the cars."
The world doesn't make sense to Dimitris anymore. "Twenty-five percent," he says. He now loses a quarter of his earnings to taxes. "I don't know how I'll manage it."
In the past, life for Greek civil servants was often a different one. Their income taxes were taken directly out of their wages, but the tax authorities could traditionally be easily circumvented when it came to side earnings from things like olive oil sales or renting rooms to tourists.
Lois Labrianidis, a 59-year-old economist and professor at the University of Macedonia in the northern Greek city of Thessaloniki, attributes the lack of acceptance of tax payments and a tax liability to a sort of north-south gradient in the general consciousness, as well as an absence of public spirit. "We lack the parameters," he says. He is referring, for example, to the recognition that paying taxes to the government also enhance a citizen's personal social security and provisions for old age.
Southern Europe's Shadow Economies
Southern Europeans in a number of countries have traditionally paid no taxes on a good share of their income, which is one reason households with far smaller incomes have been able to accumulate substantially larger assets than German households.
Estimates by Friedrich Schneider, an economist in the Austrian city of Linz, reveal how horrifying the scope of the shadow economy is in the crisis-ridden countries of the euro zone. Among all the countries in the Organization for Economic Cooperation and Development (OECD), Greece, Italy, Portugal and Spain occupy the first four positions in the applicable negative ranking.
On the Iberian Peninsula and in Italy, the hidden economy makes up 20 percent of GDP, compared with almost 25 percent in Greece. By comparison, it only constitutes about 13 percent in Germany, and significantly less than 10 percent in other euro countries, like Austria and the Netherlands.
The greater the importance of moonlighting, the lower the tax revenues. The shadow economy deprives Spain, Italy and other countries of dozens of billions of euros in tax revenue each year, and has been doing so for decades.
Schneider's figures also show that in Greece, Spain and Portugal, the shadow economy plays an even greater role today than it did in the late 1980s. The scope of the shadow economy has declined in Italy, but only slightly. In other words, if attitudes toward taxation in Southern Europe were just as good as they are in the north, the debt-ridden countries would have solved their budget problems long ago.
All problems aside, Lars Feld, a member of the German Council of Economic Experts, also sees the ECB figures as good news. "They show that Germany, with its tough conditions for the euro bailout funds, is in the right."
After all, the debt-ridden countries are only eligible for the billions from bailout funds if they satisfy certain conditions in return. In addition to spending cuts and tax increases, they generally include the obligation to actually collect taxes. If tax laws not only appear on paper, but are also enforced, then "even Greece will be able to set aside doubts concerning the sustainability of its debts," says Feld.
Countries More Prosperous than Previously Thought
Despite the drawbacks and qualifications of the ECB's wealth figures, one realization remains: The countries of the south are far more prosperous than previously supposed.
For these countries' governments and the politicians in the partner countries dealing with bailouts, this can only lead to one conclusion: There is still plenty to be had. Cash-strapped countries that have already taken advantage of aid from the bailout funds should be required to increase their own contribution even further.
In fact, the ailing economies have already begun increasing taxes on their citizens, in some cases substantially. In this context, many governments are also taking aim at assets.
Last year, for example, Spain reintroduced a wealth tax that had been abolished five years earlier. It doesn't generate much in revenues, in fact, less than 1 billion. This is because of generous exemptions that can reach 1 million on properties used as primary residences.
The Socialist government in France introduced a special tax on assets last year, which generated 2.3 billion in revenues. The Greek government plans to tax the rich to an even greater extent. After the government drastically increased revenue goals for the wealth tax last year, it now expects revenues to increase from 1.2 billion to 2.7 billion.
The Fight against Tax Evaders
Economist Labrianidis also favors requiring the wealthy to play a stronger role in repaying the government debt. "The biggest problem is tax evasion and tax flight. And I'm not talking about the kiosk owner who doesn't give you a receipt for a pack of cigarettes," says the professor. He is referring to "the very rich," and he is calling for political will and a "wealth registry." Still, Labrianidis sees "no steps being taken in this direction. There is no political will to chase capital."
The average wealth of Greek households may seem high, but the country ranks near the bottom in Europe in terms of tax revenues. In 2011, tax revenues, including social security contributions, amounted to 35 percent of GDP, compared with an EU average of 40 percent.
Greek authorities are also making very little headway in their fight against tax evasion. Lists exist of delinquent doctors, wealthy people unwilling to pay their taxes and tax fugitives in Switzerland. There are also lists of undeclared swimming pools (which are subject to a tax) and proud owners of luxury yachts whose incomes are barely large enough to pay taxes. But the tax collectors continue to come up short. Last year, tax authorities were expected to drum up 2 billion in back taxes to help pay off the country's debt, at least under the conditions imposed by the troika consisting of the International Monetary Fund (IMF), the ECB and the European Commission. The actual figure was barely 1.1 billion.
- Part 1: How Europe's Crisis Countries Hide their Wealth
- Part 2: Two World Wars and a Partition
- Part 3: A Culture of Shirking Taxes
- Part 4: 'No Great Sacrifice'
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