The deep roots of tax evasion

Back in the early 1980s I remember reading an interesting news story. Gerasimos Arsenis, who had just moved back to Greece from New York to take over as finance minister, was looking for a house to rent. When he finally found a place, the owner started asking him about the government and PASOK, among other issues, before getting to the heart of the matter: how much of the rent would actually be declared?

I remembered this while listening to an identical story from a current government official who was also looking to rent a flat. Do the math: 2016-1982 equals 34 years, eight different governments and a third bailout program whose main target is to tackle tax evasion. Throughout the years, specialists from across the world – including the IRS, the IMF and Germany – have come to Greece to adress this very issue. Yet the phenomenon remains very much alive and difficult to eradicate.

The government official in question is something of a boy scout, so he duly inquired about ways to denounce the property owner. “You can only go about it anonymously,” the experts replied, adding: “If you use your name he will file a suit and you will never get out of the mess.” It is not exactly clear how an anonymous complaint could constitute a charge but that a different story.

Some consider that large-scale tax evasion has become part of the country’s “cultural” DNA. I do not agree and I believe that any American or German would do the same if they felt they could get away with it. Another issue, however, arises. When you place a system that to a large extent relies on the shadow economy on the operating table, you are running the risk of things taking a negative turn, instead of “cleansing” it. Technocrats who tried to tackle with this issue from a black-and-white angle have failed spectacularly.

However, 34 years have gone by and nothing has changed. You still go to a taverna and get two bills – one with and the other without VAT. The gradual disappearance of cash and an increased use of credit cards may help curb the phenomenon – the unexpected benefit of disastrous capital controls.
The prevalent perception right now is based on the idea that the problem can be solved through investigations and heavy fines. Ask any Greek or foreign expert and they will tell you that even if the most optimistic fines are collected through these probes, these are one-off revenues and don’t solve the problem. Only the broadening of the tax base and a change in mentality can do that.

For the time being, however, government and bureaucrats are raising taxes with the metaphysical certainty they will collect them. A walk around town would persuade them of the opposite.