One of the great puzzles of the Greek crisis has been the treatment of tax policy. While much has been written about tax evasion and the complicated tax system in Greece, very little, if anything, has been said, written or proposed at the highest EU levels to amend and restore a sensible tax policy in Greece. In fact, and with a view geared towards only debt repayments, additional taxes have been levied to the battered Greek economy and even more are coming. Which raises the question: Who's afraid of Greek growth?
It makes absolutely no sense to expect that debt repayments can be made from an economy with a distorted productive base, focusing almost exclusively on tourism and low-value added exports, with the best of human capital of the country fleeing en masse abroad, and with taxes higher than any of the neighboring or competitive countries. It makes one wonder whether those proposing fiscal policies are even aware of the concept of elasticity (of consumer demand and of public revenues) or understand the structure of incentives for consumers and businesses. It makes us wonder why the focus is exclusively on one side of the coin (privatization, higher taxes, small share of few sectors that export goods) and not also on the other side (new domestic investment, FDI, lower taxes, high value-added exports on high technology and manufacturing goods, higher education).
Is it not possible that Greeks will collect more tax revenues for debt repayments if they are allowed to push skilled based growth? Is it not possible that stable lower tax rates will provide incentives to local and foreign firms to set-up new entities and go into new sectors? Is it not possible that foreign firms would want to collaborate for production and trade in the door of Europe? Is it not possible that a new scheme of business incentives can make the lives of Greece and Europe easier?
Or is it the case that any of the above, textbook-case, proposals will imply a smaller piece of the pie for the current strong players? It is our impression that our European colleagues are only interested to convert the physical and human capital abundant in public monopolies into private ones and have them sold abroad. Market structure that allows healthy growth through efficient competition does not change if we convert a public monopoly into a private one. Anyone that has passed Economics 101 understands that the Pareto optimal outcome is one that boosts welfare for everybody within the country by enlarging at the same time the pie, not redistributing the existing one into special interests (domestic or foreign).
We have seen no comment on the distribution of taxes among different sectors of the economy as well. Where did our wise economic advisors read that increasing indirect taxes is good for the economy and the final consumer in a recession? Where is it written that a welfare state needs a 40 percent income tax rate, a 23 percent VAT tax rate and a 28 percent tax rate on business revenue?
High tax rates are harmful for Greek growth right now; tax collection and tax evasion is a problem but you can't fight fire with gasoline. Without a larger pie we cannot possibly expect that Greeks will (finally) pay their (fair) share, to creditors and the Greek state. It looks like our European colleagues have categorized Greece as a place to only enjoy sea, sun and my girlfriend/boyfriend alone, neglecting the really high quality human capital we have, the location of the country and the significant stability entrenchment imposed in the entire region.
We are all looking to our European and global partners to actively support our call for lower tax rates for Greece. We need now a new, fair, tax system that attracts investments to create new jobs; a tax system with lower, not higher, indirect taxes to help more of those in need; a tax system where collections can be made on taxes that make sense for consumers and businesses. In a global system that everybody works out his way with his comparative advantages, a mechanism of generating wealth for Greeks too must be in place, otherwise we find it extremely difficult to understand how a fast-aging economy with 25 percent + unemployment, severe humanitarian pressures and immense brain drain can ever pay even current needs if it is not allowed to grow.
Let's put an end right now to the discussion about the service of Greek debt and the problems of the Greek economy. Unless someone is indeed afraid of Greek growth.
This post originally appeared on HuffPost Greece.