Following the Governor of the Bank of Greece, Yannis Stournaras, who has repeatedly called for a review of tax exemptions in his reports and speeches, it was the turn of the European Commission and the OECD to recommend in their reports the reduction of the more than 1,200 tax exemptions currently in effect. Essentially, the Commission and the OECD recommend evaluating each tax exemption to ensure that the state budget does not lose revenue and that some taxpayers are not disadvantaged while others are favored.
This is not the first time we have addressed this issue, as the potential for increasing revenue is significant, as historical data shows. If we look back to 2016, we’ll see that there were just over 700 tax exemptions, with the budget estimated to have lost around 3 billion euros.
Since then, tax exemptions have been on the rise. Following the exit from the third Memorandum, tax exemptions had increased, and budget losses amounted to 9 billion euros in 2019. The COVID-19 pandemic and the energy crisis following Russia’s invasion of Ukraine gave the government the opportunity to adopt further measures, resulting in costs exceeding 15.5 billion euros in 2023 and rising to 22.9 billion today, according to the European Commission.
In other words, the situation gets worse every year as various organized groups pressure the government to benefit from these measures. The government apparently accepts some of these requests, and as a result, tax exemptions now exceed 1,200.
The fact that Greece’s public finances are in good shape at the moment means there is no pressure to take measures to abolish some and reduce others. In Northwestern European countries, it is certain that policymakers would have acted after first evaluating the tax exemptions.
Furthermore, the pre-election period in Greece does not favor initiatives that carry a political cost, such as limiting tax exemptions. We’re simply passing the buck. So that is what will happen this time as well, until public finances dictate that measures be taken.
A 10% reduction in tax exemptions could theoretically generate up to 2.3 billion euros in potential revenue for the budget. These funds could be directed toward lowering income tax rates, indexing them to inflation, or targeted government spending on investments, or something else.
Obviously, it is easier to recommend, for example, the abolition of reduced VAT rates for the islands, and harder to implement it. The same applies to the increase in the low excise tax rate on diesel proposed by the Commission. Greece may import diesel and seek to reduce demand for it, but there are secondary consequences
Greece could indeed abolish certain blanket tax exemptions and adopt targeted subsidies for households that meet income and other criteria. However, this sensible measure might lead to injustices and prove ineffective since declared incomes fall significantly short of actual incomes. The case of the Roma family in Larissa, with their lavish lifestyle and the pittance reported on their tax returns, proves this.
However, the aforementioned 1,200+ tax exemptions must eventually be evaluated, and those in power must decide where to make cuts—perhaps with the help of AI. Until then, we have time, as votes are more sacred.