Bloomberg
February 15, 2011
Apostolis Rigas took his Opel sedan for a 220-euro ($354) service at a repair shop in northern Athens. When he asked for a receipt, the price jumped to 260 euros as his mechanic would have to declare the income and pay tax.
“There’s no taboo about this,” the 23-year-old student said in a Feb. 2 interview. “Tax evasion helps support families, but it’s not good for the Greek state.”
Prime Minister George Papandreou’s drive to tackle the European Union’s biggest budget deficit and pacify investors who have dumped Greek assets may hinge on convincing more people like Rigas to abandon this tax-dodging tradition. Papandreou says that Greek workers and companies have skirted tax worth 31 billion euros, more than 10 percent of gross domestic product.
Greece’s revenue from income tax was 4.7 percent of GDP in 2007, compared with an EU average of 8 percent, EU statistics show. Tax revenue fell by 2.5 percentage points of GDP between 2000 and 2007 to a euro region-low of 32 percent even as economic growth averaged 4.1 percent a year.
That decline has helped push the deficit to 12.7 percent of GDP, more than four times the EU limit. It has also inflated the national debt, which at 120 percent of GDP will be the highest in the euro region this year
Concerns about Greece’s finances led to a slump in bond prices, pushing the premium investors demand to buy its debt over comparable German bonds to almost 400 basis points on Jan. 28, the highest since 1998. The EU’s Feb. 11 pledge to potentially aid Greece narrowed that gap, though at 301 basis points, it’s still twice the level of early November.
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