Greek problems here to stay warns tax chief, as government stumbles in battle for creditor cash
Millions more Greeks need to start paying taxes says OECD boss, as Athens likely to fall short in bid to secure €2bn cash injection this week
Greece is battling to secure the release of €2bn in bail-out cash as one of the world’s foremost tax chiefs has warned the country cannot survive without rooting out rampant tax evasion.
Following a weekend of frantic efforts, Athens had been hoping its creditor powers would finally release the latest tranche of rescue money before eurozone finance ministers meet in Brussels on Monday.
But reports late on Sunday suggested Greek finance ministry officials had failed to convince lenders their plans added up, delaying disbursement for at least another week.
Lenders have been broadly positive about the government’s progress in implementing new reforms. But cash-strapped Athens has faced a number of stumbling blocks in its bid to satisfy the first set of legislative “milestones” in return for bail-out funds.
One of the main sticking points centre around laws to ease the process of home repossessions for indebted Greeks. The Troika are demanding that Greek residences valued above €120,000 be subject to the country’s foreclosure laws, from the current level of €200,000.
But the left-wing Syriza regime has resisted the demand for fear of exposing thousands more people to the threat of losing their property.
Athens is also determined to avoid imposing a controversial 23pc tax rate on privates schools. It will instead hope to propose a series of other “equivalent fiscal measures” to secure the release the first tranche of bail-out money this week.
Applying higher rates of VAT on everything from hotels to bread and olive oil, have been a key parts of the EU and IMF reforms demanded of prime minister Alexis Tsipras as the price to keep the bankrupt country in the euro.
However, Pascal Saint-Amans, director of tax policy at the Organisation for Economic Development (OECD) warned there were no “quick fixes” for Greece’s endemic tax avoidance problems, and they would not be curbed by new consumption levies alone.
“The challenges in Greece are so big”, Mr Saint-Amans told The Telegraph.
“It’s about the complete lack of compliance, it’s about a very weak tax administration, it’s about the fact that paying taxes remains something that people don’t want to do because they don’t see how the money is spent.”
He said the government would not succeed in its tax collection efforts without a root-and-branch overhaul of how public money is spent.
“Very often as tax people we lose sight of the fact that tax is just a means to fund a society. The reforms must take both into account”, said Mr Saint-Amans.
The OECD has ranked Greece as the worst developed world nation at collecting tax and social security receipts.
Millions of Greeks work as part of the country’s informal “shadow economy” allowing them to evade paying income tax. This has led to more punitive consumption levies such as VAT being used as the best way to get money flowing back in the government’s coffers.
Efficient tax collection is at the heart of bail-out monitors plans to turn around the economy, but has plagued Greek administrations since the country was first subject to an EU-IMF rescue in 2010.
During his short tenure in office, the country’s former finance minister Yanis Varoufakis proposed fighting tax evasion using students, tourists and housekeepers as “undercover” tax inspectors.
Last month, prime minister Alexis Tsipras controversially sacked the head of the country’s tax administration body, Katerina Savvaidou, after an Athens court accused her of providing television companies an extended deadline to repay taxes. Ms Savvaidou, who refused to resign over the matter, has fiercely denied providing any companies with preferential treatment.
Lifting capital controls
Should Greece fail to pass its first bail-out review this week, it could also derail attempts to get its battered banking system back on its feet.
Supervisors at the European Central Bank found a €14.4bn black hole in Greece’s four biggest lenders which will need to be plugged by the end of the year. Private bank investors are due to cover around €4.4bn of the shortfall by off-loading assets and issuing shares.
But their involvement could be in jeopardy unless creditors think the government is living up to its reform promises.
A successful Troika review will be “a precondition for the participation of private investors in the process of recapitalising Greek banks”, said Panayotis Kapopoulos at Alpha Bank in Greece.
Officials are hoping bank recapitalisation will finally pave the wave for the financial system to return to normalcy after 11 months of turmoil.
Yet the prospect of lifting capital controls in Greece – which have limited cash withdrawals from banks since June – remain slim, according to analysts at Fitch Ratings.
Greeks are unlikely to rush to put their deposits back into the banking system, despite regulators estimating a smaller than expected capital shortfall.
“Customer behaviour remains highly sensitive to political developments and we believe that it may take time before confidence in the banking sector improves sufficiently to allow capital controls to be lifted”, said Josu Fabo at Fitch.