by John Plender
Financial Times
January 4, 2011
Greece, where Europe’s sovereign debt crisis began, is at a critical point in the programme of austerity measures and structural reforms designed to slash its budget deficit. The parliament has passed an austerity budget but more needs to be done – and here a lesson from history may be in order.
Tax collection has to be more efficient, a point acknowledged by Dominique Strauss-Kahn, managing director of the International Monetary Fund, in calling for the government to attack tax evasion by the rich. Yet despite the government’s efforts to overhaul tax collection, the finance ministry is struggling to meet its revenue targets. Can anything be done to increase the tax yield in a country where many self-employed doctors and dentists pay less tax than their receptionists?
The best approach, at least in theory, is to ensure people feel they can trust fellow citizens and the state to fulfil their obligations. That trust does not exist in Greece. Occupation by the Turks under Ottoman rule, followed by the introduction of rigid bureaucracy in 1833 when the great powers installed a Bavarian prince as king, deprived tax authorities of legitimacy.
This absence of trust has been exacerbated by corruption and incompetence in government. In a Europe where Germany is playing the dominant part in imposing austerity on deficit countries, attempts to raise the tax-take also risk being seen as a demand to pay tribute to the Germans, who occupied wartime Greece.
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