In theory, fiscal consolidation can be done through increasing taxes, cutting expenditures or a combination of the two. Conventional economic thinking (as in Alesina et al) says that the austerity that works is the one that stresses expenditure cuts, not tax increases. In practice, European austerity meant mostly expenditure cuts and increases in the most regressive tax of all: the VAT. Outside of France, the top 1-10 percent was left largely untouched. This is true in the case of Greece, where the wealthiest are really good at not paying taxes. Spiegel reporting on Greece is to be taken with a grain of salt, but the fact that the country’s most competitive business (shipping) benefits from huge tax breaks just are ordinary Greeks are experiencing a massive collapse in the quality of life is something worth discussing. As is the fact that the upper crust find the state and the unions to blame for it all.
Here are a few excerpts:
‘Horrible Citizens’ The Life of Greece’s One Percent
By Julia Amalia Heyer
“Last week, Greece’s parliamentagreed to a new package of austerity measures that are supposed to reduce expenditures by €13.5 billion between now and 2015, primarily through salary and pension cuts. The measures will lower the average monthly salary in the country to some €950. Families making more than €18,000 a year will no longer receive child allowances. And, this month, Greece is once again trembling in fear over whether it will receive the next €31.5 billion tranche of loans from the European Union. If it doesn’t arrive by the end of November, the country will become insolvent.
At the same time, there are a number of lists circulating in Athens including names attached to unfathomable sums of money. These belong to politicians, actors and businesspeople, all of whom supposedly have accounts at the Geneva branch of the British bank HSBC. Experts estimate that Greeks have up to €170 billion in assets safely stored away in Switzerland.
“Greece is a poor country with very rich people,” Finance Minister Yannis Stournaras recently said. And philanthropy, though a Greek word, is not widespread in practice. Members of the country’s upper crust continue to exploit all the loopholes the government offers them. Indeed, the state makes it remarkably easy for them to do so: For a full year now, the government has been announcing that a treaty with Switzerland aiming to put an end to tax evasion is “just about to be concluded.” But it has yet to be signed.
The Greek government can no longer pay its bills and owes private-sector companies some €9 billion. But even now, three years into the crisis, it continues to exempt commercial shipping companies, which make up its most successful industrial sector, from all taxes. This relief for the rich just puts more of a burden on the poor.
The EU’s Directorate-General for Competition recently identified 57 different tax amnesties for Greece shipowners alone and, puzzled, sent a letter to the government in Athens.
Leon Patitsas, the 36-year-old heir to a shipping company, numbers among those who have benefitted from these exemptions. Hanging in his office are portraits of his forefathers next to framed pictures of tanker ships. Patitsas is the head of Atlas Maritime, which currently owns six active oil tankers with a seventh under construction in Shanghai. The Greek merchant marine fleet, Patitsas says, is the largest in the world and he believes the tax exemption enjoyed by his industry is a necessity rather than a privilege. “Shipping ensures 400,000 jobs in Greek shipyards that could go elsewhere at any time,” he says.
But shouldn’t the shipping industry be showing solidarity with the state instead of threatening to leave at the first sign of taxation?
The state doesn’t offer any security, Patitsas says, not to investors, businesspeople or him. He says that people in Greece think that capital is to blame for everything, and not the powerful unions that actually destroy jobs with their unrealistic demands rather than preserving them.
Greece-owned ships transport 20 percent of the world’s seaborne cargo, though the ships usually sail under the flags of other countries. As such, the world’s largest merchant fleet hardly contributes anything to Greece’s economic performance, and shipping revenues aren’t taxed. In fact, shipping companies don’t even have to pay taxes for divisions that have nothing to do with transporting cargo on the seas.
Patitsas and his wife, a well-known fashion model and television presenter, recently gave birth to a son. Just a year ago, the two would occasionally allow themselves to be photographed at home for glossy magazines. But they don’t anymore. “We have to be careful,” Patitsas says. “A lot of people are envious.” When asked what keeps him in Greece, he says: “I love my country.”
While Greece has public debt of roughly €301 billion, its citizens have private assets worth almost twice as much. According to the independent Hellenic Statistical Authority (ELSTAT), the top 20 percent of Greeks earn six times as much as the bottom 20 percent.”