debt crisis greece land value tax default


property tax tax shift

A Property Tax for Greece

by Fred E. Foldvary, Senior Editor, 19 September 2011

After many months of budget deficits, cuts in spending, street protests, and threats of a contagious debt crisis, finally, the government of Greece is reaching for the remedy of last resort, the property tax.

On September 12, 2011, the government of Greece announced that it plans to enact a property tax for Greece, to reduce the budget deficit and help resolve its debt crisis. If Greece had enacted a substantial property tax, especially on land value, several years ago, it could have balanced its budget and avoided sparking Europe’s debt crisis.

There has been massive tax evasion in the Greek tax system, and higher taxes on value added would drive more business out of Greece. The property tax is much less vulnerable to evasion, and it is less damaging to business. If the tax were only on land value, it would even help enterprise by promoting the most productive use of land. Also, since foreigners own much property in Greece more of the benefit from their land would go to the Greeks. A land value tax should apply to all sites, with no exemptions.

A higher national property tax was not previously enacted due to political opposition, which still might prevent the new property tax, and thereby plunge Greece into default on its debt. The Athens Bar Association is making a legal challenge to the tax, claiming that it damages the constitutional right of ownership. The Federation of Greek Commerce is also opposed.

Greeks today suffer under increased taxes, if they are paid, and some shudder to have to pay additional taxes. The Greek government should change the proposed tax to exempt buildings and only tax the land values. That way, the tax would not generally be passed on to tenants, since the burden would fall on the current owners. A land value tax does not change the supply of land, and it does not change the demand to use land, so it does not change the rent.

The plan is to include the property tax in electricity bills, to facilitate the collection of the revenues. That would minimize tax evasion, since the utility would shut off the electricity of those who refuse to pay the property tax. The electricity workers’ union is opposed to the tax and the implementation via electricity bills. Union leaders don’t want to turn off the electricity of tax evaders.

The government of Greece is under heavy pressure from banks, the European Union, and the International Monetary Fund, to reduce its budget deficit in order to obtain more loans. It is ironic that the property tax is being proposed as an emergency last-resort tax, because a land-value tax should be the first tax to be levied. This shows how topsy-turvy is the economic understanding of most people.

The Greek Communist Party is also opposed to the property tax. This opposition exposes the hypocrisy of the communist and socialist movements, as genuine socialism and communism would have the land equally owned by the people. So here we have Greek communists favoring land value subsidies to rich owners of second homes.

Of course some owners would be hurt by a brute-force implementation of a property tax. But there are humane and graceful ways of implementing property taxation. Besides exempting buildings, the tax could be postponed for owners who are retired and on low incomes.

A land value tax should be high enough so that it would be part of a tax shift that would reduce the value added and other taxes. Those with net losses could be compensated with special bonds that do not bear interest. These bonds would not be sold on the market, but given to landowners, who could then sell them. A large efficiency tax shift would be better for the economy than a smaller property tax that would not shift taxes. The purpose of the property tax on land value should be not just revenue, but economic rejuvenation.

What Greece needs now is a visit by group of enlightened economists who would promote a big tax shift and explain it to the people. This is not happening, so if the property tax fails to be enacted and implemented, Greece will surely default on its debts and cause an economic earthquake in Europe that would also shake the global financial system. It is a tragedy that Greece, the birthplace of democracy, has fallen to a corrupt misrule, and the Greek people, who originated enlightened philosophy, have fallen victim to foolish economic fallacies.

Greece needs a modern Socrates who would ask the classic questions: What do you mean? How do you know? But if a new Socrates arose, today’s Greeks would probably kill him all over again.

-- Fred Foldvary

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Copyright 2010 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.

Also see:

US debt concerns a major rating agency as …
http://www.progress.org/2011/debtceil.htm

Americans Want Deficit Cut and Entitlements Kept
http://www.progress.org/2010/entitle.htm

Nobelist Stiglitz Calls for George's Tax
http://www.progress.org/2010/irishsvt.htm

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