Taxes, let’s pull our heads out of the sand

Taxes, let’s pull our heads out of the sand

The country’s tax policy model is completely bankrupt. Tax policy creates incentives or disincentives for individuals and businesses. Taxation is part of the cost of a state’s economy. Increased taxation removes from the economy the funds it needs to grow, reduces savings and is an obstacle to attracting foreign investment.

As early as the early 1970s, Arthur Laffer demonstrated, with his famous curve, in a way that cannot be denied, that when the state increases its tax rates to a more intolerable rate, public income is decreasing. Taxpayers have no incentive to increase either their income or their investment risk and seek legal or illegal ways to avoid paying taxes. The larger the amount taken from the income by the state, the stronger and the more exonerated is the incentive for tax evasion. Taxes should reward, according to Adams Smith, “The natural effort of every individual to better his own condition.”

Particularly, according to the latest Global Competitiveness Report of the World Economic Forum, high taxation of 20.3% is recorded as the first reason not to invest in Greece and is the biggest obstacle for the Greek economy to exit the crisis.

According to our calculations based on the latest published data from the AADΕ, the effective tax rate of incomes over € 42,000, if insurance contributions are taken into account, exceeds 65%. From the same figures we can also conclude to the following:

• That the number of taxpayers with individual taxable income over € 42,000 decreased in 2015 compared to 2010 by around 45%.

• That 20% of taxpayers paid almost 90% of the individual income tax. Therefore, the largest amount of direct taxes is paid by a very small, highly capable and productive class of citizen.

Also, according to KEFiM’s study entitled “Tax Freedom Day”, in 2018 taxpayers stopped working for the state and are working to meet their own needs since July 18th. The corresponding day in 2017 was July 6th.
This absurdity, which destroys every motive for creation and progress and acts as a deterrent to any investment, cannot continue.

For all the above reasons, we support the immediate reduction of taxes and the introduction of a flat tax on income tax, which should in no way exceed 15% -20%. The introduction of a flat tax suggests a reward rather than a punishment for economic activity. Rewarding the most productive citizens, the measure would encourage legitimate wealth, investment and savings. For the economy, replacing the system of progressive taxation with a flat tax rate, combined with other structural reforms, would result in an impressive increase in the domestic product, business access to bank loans and investment funds, new investment, more efficient income tax collection and the strengthening of citizens’ tax conscience. In addition, simplifying the system would save a large amount of resources for citizens and the public.

Recovering the competitiveness of the Greek economy is not done with parametric changes to the existing bankrupt tax model. It involves radical and courageous reforms centered on economic freedom and the drastic limitation of the Leviathan state.

*Tassos Avrantinis is a lawyer and member of KEFiM’s Board of Directors.

** Panayiotis Liargovas is Professor of Economics at University of Peloponnese and member of KEFiM’s Academic Board.

Note: This article was published on Sunday 26/08 in the newspaper “Kathimerini”.