Lenders Voice Concerns About Greek Tax Crisis
Greece’s 240-billion-euro ($317.2 billion) international bailout package came with a number of strings attached. In order to receive the funding necessary to keep its economy afloat, the International Monetary Fund and European Union finance ministers developed a long list of austerity measures and financial reform that the Greek government has been obligated to implement.
High on the list is tax reform. The Wall Street Journal reports that tax dodging accounts for an estimated loss of 28 billion euros ($36.93 billion) per year, or about 15 percent of Greece’s economic output, a problem that is well understood by the country’s international lenders. In order to receive bailout funding, the IMF asked Greece to audit 1,300 suspected wealthy tax evaders by the end of 2012, with a target of collecting 2 billion euros ($2.64 billion) in unpaid taxes.
Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now.
But a recent report compiled by the IMF and EU finance ministers shows that by the end of September, Greek authorities had only conducted checks on 440 suspected wealthy tax evaders, pulling in about 1.1 billion euros ($1.45 billion) in overdue taxes, a far cry from the target level.
The report issued by the IMF and EU suggest that between 15 and 20 percent of some 52 billion euros ($70.05), or between $10.5 and $14 billion, in overdue taxes can be reasonably claimed by the Greek government…
“The mission expresses concern that work being conducted is falling idle and that the drive to fight tax evasion among the very wealthy and the self employed is at risk of weakening,” reads the report, according to the WSJ. The Greek government has had a hard time tracking money that is sent abroad illegally, and therefore untaxed. As is often the case, the wealthy have found a way to game the system.
As a result, the Greek government is refocusing on upper-middle income taxpayers, whose earnings they can track more accurately and who lack the clout to dodge tax authorities. This means targeting professions such as doctors and lawyers, those who make enough money to warrant chasing but aren’t too hard to catch.
Greece is expected to vote on a bill that will change the way wages and pensions are taxed (there will be an increase on the rate for both) and reduce the number of tax brackets from eight to three. The tax increase and simplification of the code are designed to generate 2 billion euros ($2.64 billion) in new revenue annually, nearly 15 percent of a 13.5 billion euro ($17.8 billion) austerity package.
The Greek recession is currently in its fifth consecutive year, and while the austerity measures could hurt short-term growth, international lenders have set strict long-term goals to manage Greece’s crisis. Greece’s debt is currently at 170 percent of GDP, and the IMF has targeted a level of 124 percent by 2020, with hopes that it will fall to just 110 percent by 2022.
Don’t Miss: Is it Time for Banks to Say Good-Bye to TARP?