Greece shows dire consequences of failure to tax wealthy
- Source: Global Times
- [21:23 May 05 2010]
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Illustrations: Liu Rui
By Jia Wen
Greek Prime Minister George Papandreou might feel a little relieved after having finalized the bailout deal with the EU and the IMF, but his domestic worries are far from over.
To satisfy demands from lenders, his governments was forced to pursue austerity policies like freezing wages, cutting pensions and increasing taxes, which risk driving more protesters in the streets.
Public rage is largely derived from the government's inability to answer a tough but reasonable question about Greece's failed taxation system, one that has eroded fiscal revenue, underlaid the debt crisis, and caused widespread social discontent.
Though not rich by EU standards, Greece has a lot of millionaires. However, their contribution to tax revenues has hardly matched their wealth, owing to the government's failure to monitor their income and hold tax evaders accountable.
Fewer than 5,000 Greeks declare annual incomes of more than 100,000 euros ($129,587.23), although more than 60,000 Greek households have investments in cash and securities exceeding 1 million euros, according to the Financial Times.
More ridiculous is the fact that many people with a house, with a cottage in the country, with two cars and maybe a small boat assert they are earning a mere $15,900 a year, according to a New York Times report.
What has occurred in Greece is reminiscent of similar problems in China when taxing the rich.
According to an official from the Ministry of Finance, 65 percent of China's fiscal revenue from individual income tax is generated by wage earners, which means the rich are far from being the main contributors, as they should and could be.
This is in sharp contrast to Singapore, where the rich, who amount to only 20 percent of the population, contribute 93 percent of its individual income tax.
Even in the real estate sector, where people's incomes are very high, those paying the tax are mostly senior managers who, despite their high salaries, are still regular workers. As for the bosses of property companies, it's quite difficult to verify their real incomes, according to one tax official in Zhengzhou, Henan Province.
When chatting with tax officials, to whom I often give lectures, I like to joke with them by saying that their eyes are always on hard-working teachers like me, whose income tax is automatically deducted from my salary each month.
However, if I advise them to pay more attention to richer people, their usual response is to shrug their shoulders and say, "At least for the foreseeable future, we still have to depend on you. They are more wealthy, but you are more reliable."
Taxes like the individual income tax are aimed at safeguarding social fairness through narrowing income disparity and wealth gap. By collecting more from the rich, less from the middle class, and little or nothing from the poor, it assigns more social responsibility to the rich and reduces other people's resentment toward them.
Any neglect of this function only makes a society more fragmented. After the outbreak of the crisis, when the Greek government called on its people to share the burden of tax increases, many called for the wealthy to be squeezed instead.
