Cut the Greece in your Diet

Eric Brown

Young Professionals on PIIGS

As we have all been witnessing the economic armageddon of Europe through various think tanks and news outlets, Mind the Gap has been sitting back and reflecting on how best to tackle this pivotal moment in modern history.  After hours of debates among our team of international columnists it has been decided that MTG will not simply report what is occurring on the international stage as a by-stander but rather expose the untold truth behind the headlines offered on the Economist, BBC, Bloomberg, WSJ and others.  In the world of the political economy MTG will shed light on the intentions of the major players such as Moody’s, IMF, central banks, and world leaders.

MTG has allocated responsibilities to cover the PIIGS (Portugual, Italy, Ireland, Greece, Spain) among its  international affairs and economic columnists.

Our newest member, Eric Brown, and I will take on Greece head on as his role shall be to provide the groundwork in understanding my viewpoints on Greece’s true significance for Europe. As always these hard topics will be explained through easy reads. Our readers from over 100 countries have been our pillar of strength as we continue to grow globally.

As a teaser, one of my articles will argue how the Greece debacle is actually a blessing in disguise for Europe, in fact I will be arguing it was the best thing since the Marshall Plan.

Did we get your attention yet?

For now first is Eric’s expert break down on the importance of tax studies.

Benjamin Franklin’s oft quoted witticism on the certainty in life of only death and taxes would be hotly contested in Greece.

CNN reported late last year that 6 in 10 Greeks don’t pay income tax while the Christian Science Monitor quoted reports suggesting that somewhere between 20 and 30% of Greek economic activity is underground – simply put, not reported to the government.

Estimates of lost tax revenue for the Greek state range up to $30 billion a year, which would go a long way towards helping re-establish Greece’s long term solvency. A study coming out of the University of Linz suggests that this has been a long-standing problem for various European states, including Portugal, Italy and Spain. These four celebrity debtors within the EU had underground economies with average size of 20.78% of their official GDP in 2008. By comparison, Canada’s underground economy was sized at about 12% of its official GDP. That of the USA? 7%.

It is not, however, a vibrant life of back alley dealings which drives the large majority of this underground economy. Poor governance structures and a culture of corruption have played their part in making Greece a conspicuous outlier among established European democracies as having one of the lowest effective personal income tax rates in the EU, being ranked

23rd out of 27th in 2007. As politicians, economists, financiers, social media and grassroots organizers all seek to articulate their answer to the Greek debt crisis, the crisis of tax policy and governance in Greece should be a key, nonpartisan, plank of any reform plan posited. Both the centre-left and centre-right of Greece will continue to lack the credibility to put forward cuts to public spending without addressing how to improve their revenue stream.

“If you don’t attack tax evasion you don’t have the moral authority to cut spending,” says Michael Massourakis, chief economist of Athens-based Alpha Bank, in an interview with Bloomberg. This should make sense to those who view the state as a corporation – no one invests in a company which continuously focuses on cutting costs while maintaining a grossly deficient billing system.

For the left, tax evasion represents a crime primarily of the rich. Accounts of tax evasion focus on its occurrence at the doctor’s office, with the mechanic or taxi driver. A frequently updated academic paper by Manos Matsaganis of Athens University and Maria Flevotomou of the Bank of Greece suggest as its core finding that tax evasion in Greece is fundamentally regressive – leading to higher income inequality and a less progressive redistribution system.

Even more surprising, it has been getting worse – with growth of the underground economy anticipated for 2010 and this year and Greece continuing its decade-long trend of losing ground in collecting taxes, according to the New York Times. The long-term chronic failure of the Greek government to combat what Kostas Bakouris, the head of the Greek branch of Transparency International, calls the constant lure of petty corruption means painful social changes ahead for Greece.

The ramifications of tax studies, tax policy and governance reform relating specifically to revenue collection have been most keenly felt this year in Greece. Taxation, as a tool to progress the welfare of a people or the interests of a clique, has always made itself be felt in all social strata.

The spirit, at least,  of Ben Franklin’s comment seems to hold true – no people can escape the effects of death or taxes.