“It’s like cops and robbers,” says Vassilis, “the more taxes the government impose the more we try to find ways around them.”
Vassilis, who has his own IT firm with several employees, is just one of the hundreds of thousands of Greeks who fear that the new bailout deal set to pass through the Greek parliament tomorrow will make life even harder than it already is. The bailout package, if approved, will both slash public spending and, more importantly (to Vassilis) raise taxes. The deal includes yet more increases on the Value Added Tax among other measures that will further strain the already threadbare pockets of Greece’s beleaguered citizens.
“The new deal is going to increase the tax burden, I am sure of it,” says Vassilis. “And the people are not going to pay, because they simply cannot afford to pay.”
Since the crisis began (technically in 2008, but it was 2009-2010 when Greeks really started to feel its effects on a national scale), the Greek government has sought to claw back money in almost any way it can from its people to service its huge debts.
Greeks pay taxes on almost everything now—and in vastly increased amounts. Since the crisis hit, VAT has risen to 23 percent and in so doing almost single-handedly destroyed the construction industry—one of the three pillars on which the country’s economy rests. (The other two are tourism and agriculture.)
The more taxes people pay, the less money they have. But with unemployment soaring, the tax base is shrinking. The government is in a bind and has been forced to get creative—taxing those who do have incomes or assets all the harder. The most egregious example of this is ENFEA—the real-estate tax (officially the Consolidated Tax on Property Ownership). No tax is more widely loathed in Crisis Greece. The country taxes properties in multiple ways—from inheritance to transfer—but what makes the ENFEA so hated is that it is a tax for mere ownership of property. And that it has worked. Since it was passed in its present form two years ago, it has taken government revenues on property from €500 million ($674 million) to about €3.5 billion ($4.7 billion) up to the beginning of last year.
What makes the tax even more egregious is that it was reverse engineered. A prominent lawyer recently explained it to me: The government, she said, needed €2.6 billion, so it set up a target of €3.4 billion of receipts. Every homeowner was de facto taxed and those able to pay were taxed 30 percent more than they should have been. Her own taxes went from €650 to €2,400. Little surprise that many Greeks feel the country’s tax regime has become licensed larceny.
And as with so many of the EU-imposed austerity measures, the effect has been counterproductive. When U.S. President Franklin Roosevelt created Fannie Mae in 1938 as part of the New Deal during the Great Depression, he did so to create a class of landowners—people with a stake in society; people who had something to lose. Now in Greece, friends and family who have money tell me that they either prefer to rent or are stuck with properties that they can’t sell. Those that are on lower incomes are now essentially precluded from ever buying a property because even if they can afford it they can’t afford the taxes that now come with it.
This class of people—without property, without jobs, and, inevitably, without hope—are those that voted in Greece’s hard-left governing party Syriza and that voted No in the country’s recent referendum. Greece’s creditors—to a certain degree—have pushed its people into doing the opposite of what they want at almost every stage since Syriza came to power in January.
But, as Vassilis explains, the government had to do something: “The thing with the ENFEA is this: For years in Greece there was a lot of ‘black’ money floating around, which people would use to buy property, so the government thought ‘We’ll tax just owning property to get that money back.’”
I ask Vassilis where this culture of national tax evasion comes from? “Well it’s a chicken and egg situation,” he replies. “But you have to understand the dynamic between the state and the individual in Greece. If, like me, you’re not a public servant but a freelancer, the state assumes you’re a thief, and because they think that they’ll find a way to steal from you.”
“For example, say I’m an honest businessman that makes €20,000 per year. I’ll report those earnings to the tax office. But they may very well say: You have this car, you live in that area of Athens, you must be making €30,000 per year, so that’s what we will tax you at. There’s a special term for it: tekmirio, presumption. So have a good doctor who declares all his earnings and a bad doctor who only declares 10 percent, but both get taxed the same. So you may as well be a thief, because they’ll tax you more anyway. In the end, you are presumed to be a thief so you act like one.”
It’s a direct fight between the state and individual; between cat and mouse. And before the new measures have even been signed into law people are getting ready to dodge them. “It’s going to be a battle,” says Vassilis. “They [the government] said they’re going to target shipping companies and right now as we speak I know that shipping companies already have plans in place to get out of Greece.”
“Look, if you catch someone by the neck and he’s desperate, he’s going to take desperate measures. I feel desperate and know that many of my friends do, too. So I’m going to try to move my business abroad. I’ll make sure I get paid abroad, move my money out of the country—create a cash pile outside of Greece. I can do that because it’s the nature of my business—obviously a fisherman can’t do that. But you know, we Greeks are very good at these things. It is the culture here. We’ve been raised like this. It’s a battle that has been going on for many years and we’re well trained—like guerrillas.”
“The new memorandum will make everything worse, including tax evasion. Of that there is no doubt,” he says with total certainty. But surely, I ask, the external monitoring of reforms comes with the new deal will make tax evasion hugely difficult now. He laughs: “No one can seriously think that this crackdown will work because someone wrote it on a piece of paper. Greece doesn’t work like that.”