Straight Talk—Greece and the Economy

Marios T. Kyriacou, Senior Partner at KPMG Certified Auditors S.A., discusses the framework for growth and reform in Greece.

Do you believe that Greece is now in a position to grow and prosper?

I believe that the new loan agreement provides the opportunity to grow and prosper. However, growth and prosperity cannot be legislated.

Growth is a result of a series of actions, legislative moves and investments. Investments originate basically from two sources viz. the public or the private sector. Currently in Greece the public sector is not in a position to make any significant investments. Therefore, we must turn to the private sector, both local and foreign.  For the private sector to invest they need a stable environment and rules of the game. What is stability has been explained in numerous articles so I will not expand further. It is up to the government to legislate in such a manner as to provide this stable environment. Should they need help to do so there are many people ready and willing to assist. Given the current lack of public resources for investment, the government should expand the Public Private Partnership approach (PPP, SDIT in Greek) whereby private investments are made for the benefit of the State, both a short- and long-term. Short term, there will be the generation of jobs, directly and indirectly from the related business activities that are bound to arise, revenue from taxation from the payroll and the profits generated. In the long term the resulting asset will be in the ownership of the State for ongoing use.

Do you think the current government is in a position to encourage private sector investment?

The basic premise for any government is to accept that we belong to the EU, which is highly in favor of private investment. You simply cannot be a member of a club which has defined rules and not adhere to them. There is nothing wrong with you trying to change them but until the club changes the rules, you should continue to adhere to them. The current club is very much in favor of the private sector and it is geared towards actions to support private investment for development and growth. I do not see why our government cannot conform, especially after having signed the recent loan agreement.

Does our current tax system encourage investment?

Tax laws are enacted with a primary view to encourage development and growth or to satisfy the cash needs of the State. Obviously, under normal circumstances, there will be a logical balance between the two. Given our current fiscal problems, our tax system is highly geared towards collection at the expense of growth. Hence it does not encourage investment.

How can we overcome such a tax impediment?

Without growth, tax revenues will decrease with mathematical certainty. Taxing the rich excessively has never been a solution in any country either because there are not enough of them or because they have the means to pack up and go to another country. In any case I believe that the fiscal problem of Greece did not only arise from the crisis but from rampant tax evasion throughout the years.  The reasons for this is the lack of trust between the tax payer and the authorities and the high tax rates, high penalties, unfair treatment by the State and lack of effective punishment. These factors have resulted in an attitude in the majority of people to tax evade, in the mistaken belief that they will not be punished and, more important, that they get nothing in return for the payment of taxes. In addition to embarking on a campaign to explain the consequences of tax evasion on each one of us, we must also find a way to sever the collusion (synallagi) between customer and supplier to avoid tax. Focusing only on issuing or not issuing receipts has proven ineffective so the effort should be towards disclosure by individuals of their sources of income, expenditures, and hence wealth. The proper use of a Wealth Statement i.e. the “Pothen Esches” will be our best solution to combat tax evasion now. This will overcome the collusion between customers and suppliers as the suppliers will know that sooner or later they would have to account for their wealth in the wealth statement.

Therefore, combating tax evasion will increase the revenues of the State and allow it to use the tax system for growth.

Is it true that the independent tax audits introduced in 2011 will end as of this year?

One of the most important reforms during this crisis which was enthusiastically received by the companies, various organizations, independent auditors and, I dare say, many of the tax auditors, and which produced about 800 miliion Euros of additional taxes from the first year, will cease as of 1 January 2016 for reasons that I do not really understand.  For the first time in Greece companies were filing their tax returns in the knowledge that they were compliant with the law and paying their taxes without waiting for a period of up to five years to find out what their final tax liability would be.

The fact is that the tax authorities will now have to employ and train about 2,000 people to be able to carry out the audits within the period of the statute of limitation. Why anybody would want to burden the State with such costs at a time when the work is done at no cost to the State and with significant revenues coming in promptly is beyond me. Therefore, while the government is searching for alternative funds (isodynama), the independent auditors stand ready to audit all the unaudited years within two to three months and, with a high level of certainty, based on the experience of the first year of audit, the State would collect over 1 billion Euros!

Assuming a successful recapitalization of the banks, will that help the economy?

It will certainly help by not having one or more banks going bankrupt and adding to the existing problems. We should remember that our banks were quite healthy until the PSI, which was then followed by the general attitude of people not paying their debts irrespective of whether they had the money or not. The banks, irrespective of the recapitalization, cannot assist effectively with the recovery until such time as they are able to collect the outstanding loans and attract further deposits. Remember that new loans can only be given from deposits or the re-payment of existing loans. The funds from the recapitalization cannot be used for the granting of loans.

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