ODE ON A GRECIAN EARN

Syriza’s most radical plan for Greece? Collect taxes

In a roundabout way, the leak of details about account holders at HSBC’s secretive Swiss banking business—which prompted a wave of prosecutions when obtained by governments in 2010—explains why Greece’s new government is so popular at home (paywall). For all of the angst about the left-wing radicals threatening to rip up Greece’s current bailout program, which they hold responsible for the country’s “unending recession,” in the words of prime minister Alexis Tsipras, elements of the alternative austerity plan pledged by Tsipras’s Syriza party should not be dismissed.

Included in the bank leak is the famous “Lagarde list” of 2,000 Greek HSBC clients with $2.6 billion deposited in Swiss banks, which was sent to Greece in 2010 by IMF chief Christine Lagarde in an effort to spur the country’s tax collectors to garner more revenue. Unlike other cash-strapped countries that have begun pushing back on international tax avoidance, Greece sat on the list, doing nothing, even as its government at the time launched a program that included reductions in spending and public-sector jobs.

It took two years for a Greek magazine, Hot Doc, to publish the list, which prompted public outrage—and the arrest of Hot Doc’s editor, Kostas Vaxevanis. Vaxevanis was quickly acquitted, but it was soon alleged that the socialist party finance minister at the time, George Papaconstantinou, removed the names of his relatives from the list. He will stand trial on the charges, which he denies.

Despite ongoing scandal, little has changed from a policy point of view. Last year’s IMF review of Greece’s progress under its bailout concluded that “while there are finally signs of improvement in tax administration, progress still disappoints.” Overdue tax collection fell €382 million ($433 million) short of its target in 2013. Greece’s inability to levy and collect tax represents a “critical risk” to the country’s compliance with its creditors’ conditions, the IMF said. Tsipras has made pointed references to foot-dragging on the Lagarde list and other tax investigations:

Whether Syriza can actually deliver on its tax promises remains to be seen. But it can hardly do worse than its predecessors. The center-right government it ousted made little progress compared with the center-left administration it replaced in 2012, according to Harry Theoharis, who was appointed to head a streamlined new Greek tax collection agency in 2013. Soon, his attempts to garner revenue from large companies and wealthy individuals were opposed by his own party, leading to his resignation:

Mr Theoharis said that the government of Antonis Samaras, the leader of the conservative New Democracy party, started pushing him to adopt what he diplomatically calls “a more populist stance”. In practice, that meant going easy on politically sensitive targets such as friends and benefactors of the party. “It was a case of ‘don’t do this, don’t do that’,” he said.

As Greece’s new government attempts to spin the inevitable restructuring of its bailout loans in a way that’s palatable at home and abroad—against, perhaps, all odds—it’s important to understand why the current program has been thrown so far off track. The economist Michael Pettis offered this analysis of the situation in an important essay last week:

It might be far more accurate to posit a conflict between the business and financial elite on one side (along with EU officials) and workers and middle class savers on the other. This is a conflict among economic groups, in other words, and not a national conflict, although it is increasingly hard to prevent it from becoming a national conflict.

Of course, nobody enjoys a tax audit. But what Syriza voters said, in part, was that the time to tighten the country’s lax tax administration is long overdue—the benefits to all outweigh the costs to some. In his book about the Greek financial crisis, journalist Yannis Palaiologos describes taxation as something that the “modern Greek state has never quite mastered in almost two centuries of existence.” The roots of this dysfunction run deep:

Tax evasion epitomizes the Greek Disease. It is misleading to call it a deviant practice. It is a social phenomenon—historically rooted, rampant, and widely accepted as the way of doing business.

If the EU and IMF want a blank slate in Greece, wiping away the culture of corruption that plagues its politics and the array of obstacles that stand in way of private-sector growth, they may have a better local partner than they realize. While Syriza’s public-sector reform agenda remains too clouded for its creditors’ liking, there is a case to be made for outsiders giving a bit more appreciation for the first Greek government in years that might actually try to collect the taxes it is owed.

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