GSEE: What does the study show about the unequal distribution of the tax burden on households in Greece

The study, entitled: “The unequal distribution of the tax burden on households in Greece”, was published today by the Labor Institute of the General Confederation of Greek Workers (INE/GSEE), the findings of which were presented during an event held in Amphitheater of the Visual Arts & Music Foundation B. & M. Theocharakis.

The study, which was prepared by the professor of the Department of Economic Sciences of EKPA, Mr. Georgia Kaplanoglou. personal income taxation. Combined, these two tax categories now generate over 75% of the state’s total tax revenue.

The study precisely attempted to elucidate aspects of the distribution of the tax burden in Hellas. As mentioned, the issue is critical especially in recent years, during which our country experienced a deep economic crisis, with the tax burden increasing greatly, as significant increases in tax rates went hand in hand with decreases in incomes.

According to the findings of the study, “during the period, which was also examined in the context of the three austerity memoranda, a large number of tax changes were adopted, with which the relevant tax rates were adjusted upwards and the tax burden increased, in many cases excessively that raise households.

In the case of indirect taxes, extensive and successive increases in the relative rates of both VAT and excise taxes have pushed the tax burden from 11.4% of household consumption expenditure in 2008 to 15.7% in 2019. In the vast majority of them, these increases took place in the period 2010-2014, in the context of the first two memoranda. In the period 2014-2019, tax rates continued to change, but to a much lesser extent and not in a uniform direction. Overall, from 2008 to 2019, the inverse progressivity of indirect taxes strengthened, but less than we would expect.

The dramatic shrinking of family budgets and the consequent restructuring of family spending explain this development.

On the one hand, large shares of this spending are now absorbed by spending on absolutely necessary goods and services, such as food and housing, whose taxes are purely inversely progressive. At the same time, the contribution to the distributional characteristics of indirect taxation of certain progressive taxes has decreased, because the economic crisis caused a large reduction in the consumption of the goods on which these taxes are imposed. Such is the case with taxes on clothing and footwear, as well as on household goods (durable or non-durable).

On the other hand, the data show that poor households also significantly reduced their spending on essential goods, such as medicine or heating oil, leaving their basic needs uncovered. Given that taxes on specific goods were, before the crisis, the most strongly inversely progressive taxes, it is understood that indirect taxation appears less inversely progressive in the crisis, in part because many poor households lack basic goods and therefore do not they pay the corresponding taxes”.

Who were most affected?

At the same time, the study points out that the reduction in household consumption expenditure by approximately 1/4, on average, was not uniform for all households.

According to the study’s findings, “the main loser of the financial crisis was the middle class, as its share of the dramatically shrinking overall consumption declined. In the period 2008-2014, while consumption fell for households across the distribution, the middle class also lost in relative terms as its share of consumption shifted to the richest 10%. The period 2014-2019 reversed the trends of the previous period, as it marked a marginal recovery in total household consumption expenditure, but also a shift in its distribution in favor of both the poorest groups and the middle class.

This change in trend is not enough to reverse the developments of the period 2008-2014, which dominate the whole of the period 2008-2019.

The 2019 household budget data has also been used to assess the distributional effects of the current inflationary crisis and, in particular, to answer the question: “How much would the cost of living for households increase today if they sought to keep consumption constant of food and energy at the levels of 2019, i.e. the year before the outbreak of the coronavirus crisis?”. As might be expected, the percentage increase in the cost of living is greater the poorer the household. However, this happens to a much greater extent than in other countries, for which similar studies have been carried out, while it is equally worrying that the burden on the family budget of households, especially the poorest ones, tends to acquire a momentum that primarily determined by continued food price appreciation.

For the first time, in the month of September, for the poorest 20% of households, increases in food prices resulted in a larger percentage burden on household spending compared to household energy.

Protecting the purchasing power of households, especially vulnerable ones, therefore becomes a high priority. This issue has already been highlighted in the public debate by the GSEE, which has pointed out the impact of inflation on the purchasing power of wages.”

Escalated differentiation of the impact of inflation at the expense of the poorer strata

According to the study, “poorer households face substantially higher percentage increases in their cost of living. In June, for example, when the highest inflation was recorded in 2022, the poorest 10% of households would have to increase their total spending by 15.5% in order to keep food and energy consumption constant, while the corresponding rate for the richest 10% of households is just 6.4%.

In addition, poorer households have less room to cut other categories of expenditure, as inelastic expenditure (on food, energy and health) covers more than two-thirds of their total expenditure.

Empirical data, therefore, show a clear escalating differential in the impact of inflation against the poorest strata, which worsens from the beginning of the year until June 2022. A slight de-escalation is observed in July and August, which reverses again in September”.

What is observed in Greece?

Based on the research, “in Greece, although the tax scale is indeed designed in a progressive way, in practice its progressivity is undermined by the fact that not all incomes fall under it, because either they are not declared to the tax authorities or the same the law provides for their taxation on a separate scale (eg rents) or with a single independent rate (eg dividends). If real incomes were identified and there was a coherent definition of income, the structure of the system could also be streamlined with much more gradually rising marginal tax rates.

The detection of taxable material by the authorities and the treatment of tax evasion have always been among the declared priorities of the governments, however, the indications that emerge from this specific study agree that the scope for improving the level of tax compliance in our country is large.

Understanding the factors that influence tax compliance is becoming an increasingly interdisciplinary field of research worldwide. In recent years, tax authorities in Greece have been emphasizing the expansion of electronic payments and the digital transformation of tax audits. More generally, the future of tax evasion in conditions of changing technological capabilities is a challenge for tax authorities.

As it is typically reported, “enhanced cross-referencing capabilities by tax authorities will likely significantly reduce the scope for income concealment for most taxpayers, but not for a small number of very high-income taxpayers, who can be exploited to for their benefit the possibilities that technology will give them”.

Regarding the policy options, the study notes the following: “subscribing different categories of income to different scales or defiantly low independent taxation of dividends are examples of options that promote neither social justice, nor the enhancement of tax revenues. At the same time, the reforms adopted during the economic crisis meant the substantial abandonment of the tax relief policy for families with children.

The simplification of tax provisions and the broadening of the tax base could possibly justify such reforms at the expense of families, if, at the same time, policies to effectively support families with children in other ways were decisively strengthened.

The dramatic worsening of child poverty indicators, found in a number of studies, proves, however, the deeply deficient treatment of families by state policies”, the study emphasizes.

The challenges

Finally, “the demand for progressive taxation has now emerged as dominant at the global level, because the weakening of the redistributive features of tax systems in recent decades is considered to have contributed decisively to the increase of economic and social inequalities to unprecedented and now threatening levels. At the same time, public budgets are called upon to support national economies, which are faced with repeated crises.

A major question, therefore, is who will bear the tax burden required to finance the relevant public expenditure. With the inequalities in our country increasing again from 2019 and the needs for support of society becoming imperative, the above considerations are particularly relevant” it is pointed out in the study, in which it is stated that a tax system that distributes tax burdens fairly, strengthens citizens’ trust in the state, encourages the voluntary compliance of taxpayers with this system and, ultimately, strengthens social cohesion and the feeling of solidarity within society.

After the presentation of the study, there was a discussion on its findings, which was moderated by Mr. George Argeitis, scientific director of the INE of GSEE and a professor in the Department of Economic Sciences of the EKPA, and was attended by Mr. Vassilis Rapanos, emeritus professor in the department of Economics of EKPA and regular member of the Academy of Athens, Mr. Panagiotis Liargovas, president of KEPE and professor in the Department of Economics of the University of Peloponnese and Mr. Frangiskos Koutentakis, coordinator of the State Budget Office in the Parliament and assistant professor in the Department of Economics of Sciences of the University of Crete.

RES-EMP

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