articles, this makes uncomfortable reading for a Greek.
Just to recap: the reason Greece is in such a mess is threefold: the euro allowed the country to borrow far too easily and provided a financial crutch for a lame economy; institutionalized corruption; and an incompetent, aloof, nepotistic political class.
I have written about the political class before, but this post is about the pervading corruption and in particular about paying tax, something which is treated by the Greeks like putting money in a hat passed around by a street performer.
I said before that in 2009 only 33,000 Greeks declared an income over €100,000 and in 2010 the figure had dropped to 31,000; only 74 declared an income greater than €900,000. But €230 billion are held in private and company accounts, and there are whopping 15.4 million private properties in a population of 11 million (with a total value estimated at €400 billion).
Receiving rent from property is the preferred method middle classes supplement their income, because it is ripe for tax evasion. You sign a contract for €300 per month, and you pay an extra €200 in cash. But why would you do such a favour to your landlord? Because paying rent is a way for the taxman to assess your own income. You can’t be pay the true €500 per month and have a car (over 4 million Greeks own a car) and afford a swimming pool (there were 125,000 of them in 2010) and declare an income of only €15,000 a year.
So the taxman and the citizen are involved in a cat-and-mouse game. The state suspects everyone of trying to cheat it, because everyone does. So it tries to outsmart taxpayers with ‘proof of income’ legislation. I mentioned ownership of car before: there is a scale of minimum income you must declare per car brand. Other such income proofs are swimming pools yachts, second houses, etc. This is clearly not a healthy relationship between state and citizen, but it goes far back to the long Ottoman occupation, so it’s hard to know which came first: the chicken or the egg?
It was on the island of Sífnos this summer, where I had an interesting conversation with a friend married to an English girl from Sussex. His father-in-law wanted to buy a piece of land near my friend’s villa.
“Everything went well until the final deposit. I asked my father-in-law for €100,000”(my own rounded value) “but when he received the contract, it said that the land cost €90,000. He was shocked. What happened to the other €10,000?” he asked.
My friend tried to explain to his father-in-law that his solicitor did what everyone else does. He arranged a deal with the notary public. They both knew that the land was worth €100,000, but no one would admit it in writing. The notary public overestimated it at €130,000 for stamp duty purposes, while the solicitor put down €70,000 as a starting bid. They ended up agreeing at €90,000. The seller’s solicitor who was in cahoots with the buyer, agreed, of course, since his client would declare a lower income and receive €10,000 in that proverbial brown envelope.
But the father-in-law, being British, couldn’t comprehend this, and I don’t blame him. How did he know the real amount his land cost? What if some of the missing €10,000 ended up in his solicitor’s bank account – or even worse, my friend’s pocket?
Point is, he can’t be sure of anything, and he can’t trust anyone, for in Greece no transaction is transparent. This is not the plumber telling you it’s forty-quid-cash-no-VAT for unblocking your drains. It is a land transaction with the official notary. Such tax evasion permeates all life in Greece. It’s not just the odd handyman; doctors, dentists, solicitors, landlords, architects: they expect part of their fees in undeclared cash. And that is clearly not a sound basis for business.
Except if your company manufactures brown envelopes.