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  • Rory O'Keeffe

Greece: how austerity, and forced surplus-chasing, risk wrecking a 'recovery'

Greece has had the highest increase in tax revenue of any of the 35 OECD countries in the last 12 months.

Its revenue grew from 36.4 per cent to 38.6 per cent of GDP. The average across the 35 (which of course includes Greece) was just 0.3 per cent.

Although much of Greece's media describes this as a ‘tax hike’, the OECD statistical model does take into account not only the amount of tax charged, but also the amount successfully collected, and so the picture need not be as negative as this piece makes out.

In several states (including the UK and US, though less so in Germany and France, despite the latter two’s quite large steps towards a Chicago-school economic system in the last decade) tax ‘avoidance’ costs nations a significant amount of money, and their failure to collect those taxes impacts the community as a whole, as well as the OECD figures.

However, the Greek Parliament’s Budget Office (PBO) notes that the 2018 Greek Budget will raise taxes even further, and its head Panayiotis Liargovas warned: ‘Greece is consistently seeking primary surpluses above the official target.

‘Seeking primary surpluses that are more than what is needed means greater austerity and the creation of suffocating conditions for the market and economic activity in general. The more we seek higher surpluses through increased taxation, freezing public investments and curtailing expenditure, the smaller the growth rate will eventually be.’

And it is hard to disagree with that.

A major problem is that the EU – the driver of the austerity model – has backed the Greek government into a position where, because it has been forced to sell off its public services (some of which brought in a reasonable annual income) at the same time as private investors were (understandably) incredibly nervous* about keeping their money in Greece, the government has had very little way of investing in the economy and driving growth in this most traditional, and effective, way.

*we should note here that, despite the current ‘tax-is-bad’ rhetoric surrounding Greece and its crisis (and some of that does have some small basis in reality, as we shall see) the reason investors lost interest in Greece had absolutely nothing to do with high taxes and absolutely everything to do with the fact that there was an extraordinarily-high chance that they would lose their money. This is becoming increasingly important as right-wing economists are now lining up to tell us that lower taxes are all Greece needs to recover, with the implication that if only Greece hadn’t had such high taxes, it would never have been in so much trouble. High taxes are not, and never were, the reason Greece collapsed. Though they and what they are used for certainly are a factor in how and whether it recovers.

Unable to inspire growth through investment (whether it is capable of doing so is one thing, but it is clear that its 2015 election promises were set out on the basis that this was its exact plan – the EU’s austerity programme, rather than Syriza’s outlook, ended that idea), and feeling that it has little to no control over the Greek economy, the government has instead (and in fairness, understandably as well as immaturely) set out to ‘impress’, by not just meeting, but exceeding targets.

The trouble is that there are high-tax models which can benefit nations, but none which are based on the sell-off of publicly-owned utilities and services, and the simultaneous adherence to a strict austerity agenda. This is a major reason why the UK’s Office for Budget Responsibility yesterday predicted that the UK economy – even after factoring in the effects of Brexit – will shrink every year for the next 20. Because if you refuse (or in Greece’s case, are not allowed) to invest, money drifts out of the economy, production and wages fall, meaning spending falls, living standards collapse and the economy crashes.

(on this point, we should also note that the Greek government’s policy – once more dictated by the EU – of raising so-called ‘indirect’ taxes such as VAT, to a greater share of the national tax take, affects society’s poorest far more than its richest, because the increase is exactly the same for all – five per cent on an item of clothing, for example, might mean an increase of €2. This will affect someone who has €5 ‘expendable income’ a month far more than someone who has €500, and on an item which originally cost €2 means that they must wait three, rather than two, months to spend any money at all on those clothes. This is not only important because it is an effectively greater punishment for society’s poorest people, but also because society’s poorest people tend to be those who spend most of their income, keeping money moving in the economy. If you discourage or prevent them from doing so, the economy slows significantly).

The PBO’s warning is correct, but it does not get to the heart of the issue. There has not only been ‘too much austerity’: all over the world we keep seeing that any austerity at all is actively detrimental to the recovery of economies in crisis. Even the IMF, which for decades was the world’s major cheerleader for austerity, has now conceded this.

As in the case of the refugee response, there is blame to be shared by a number of groups, and the Greek government’s ‘enthusiasm’ to ‘prove itself’, while understandable given the circumstances, is certainly a large part of that. But the basic responsibility for a model under which Greece can only increase its income by taxing its own people more, which at the same time is killing its own economy, lies with those who originated the idea, and insisted upon it. Not Syriza, but the Eurozone’s finance ministers.

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