Enfia tax: Greece’s new symbol of austerity

Unprecedented measures imposed during economic crisis to squeeze more out of taxpayers proves unpopular with Greeks.

Owing money to the government has been elevated to a criminal offence in Greece [EPA]

Athens, Greece – George N owes the government 200,000 euros ($270,000), and pays a tax rate of 45 percent on his income. His debt stems from a property tax on a half-hectare estate left to his family by his grandparents.

“We are all dried out,” says George, who asked that his full name not be used for fear of attracting the taxman. “Since they have already taken all our money and we can no longer pay. We’re waiting for the day when we will be arrested for tax evasion.”

It now appears that his family will have its property confiscated.

Greece has begun to take measures never before attempted during its economic crisis, to squeeze more revenue out of taxpayers: The government is using new powers to seize and empty bank accounts, and it has now begun foreclosure proceedings on homes and other properties. Owing money to the government has been elevated to a criminal offence, so many otherwise law-abiding citizens are facing prison terms in addition to confiscations of property.

George is one of a rapidly expanding number of Greeks who call themselves neoptohoi, or nouveaux pauvres (newly poor): People who are firmly middle class by education and fixed assets, but who haven’t enough cashflow to face a slew of taxes governments have introduced since 2009 to balance the budget.

These include a 1-4 percent surcharge on income tax called a “solidarity tax”; an annual “professional tax” for, literally, having a profession, and massive increases in petrol and consumer tax. But the tax that has come to dominate Greeks’ perception of living in debt bondage is “Enfia”, or Consolidated Tax on Property Ownership, voted into law last month.

Until 2010, the contribution of property tax to state coffers was much lower than in the majority of European countries. Our tax system almost ignored this source of revenue.

by - Yannis Stournaras, Finance Minister

Emergency levy

About half a million people with high net worth estates have paid property taxes for decades. In August 2011, as unemployment climbed and income tax revenues plunged, the socialist government instituted the first ownership tax on the country’s remaining five million real estate holders – about half the population.

Initially it was to be a two-year emergency levy, but last month the conservative-led coalition government renamed the levy Enfia – it has been rebaptised five times – and made it permanent.

“Until 2010, the contribution of property tax to state coffers was much lower than in the majority of European countries,” Finance Minister Yannis Stournaras told parliament. “Our tax system almost ignored this source of revenue.”

In fact, Greece has some 40 property-related taxes and fees on construction, rent, sale, inheritance, transfer, and legalisation of illegal structures, but none of them tax the average household for mere possession. Enfia raised government revenues on property from 500m euros ($674m) to about 3.5bn euros ($4.7bn).

Making matters worse, the government set a strict February 2014 deadline for all 2013 Enfia, and rushed overdue notices for 2011-12 arrears, creating a debt bottleneck.

Repossessions are pointless in practical terms for bringing in money. The government’s tax enforcer recently admitted to a Greek newspaper: “I don’t think we do more than 100 auctions a year and almost none of them bears fruit,” said general secretary for public revenue Haris Theoharis.

Asked by Al Jazeera why the government pursues repossession then, he replied: “It allows debts not to be forgiven… It has a value in itself in the sense that we hold the debtor against their debt.”

In other words, the government believes that through real estate, it has some real leverage to collect. Property cannot be hidden or moved. It is the ultimate hostage.

However, a parliamentary budget monitoring report [Gr] released on January 29, disagrees with the government’s policy.

“Raising taxes on an already heavily taxed population won’t increase revenues, because taxpayers are exhausted and tax evasion is thus increased,” it said.

Honesty lost

Some taxpayers are struggling to remain honest. For Gloria Aliyianni, the daily negotiation with her tax authority has come to define her life. When she was 13, her father repatriated his family and savings from a lifetime as a copper miner in South Africa. They invested it all in real estate, expecting to build a better life in Greece.

Aliyianni and her husband worked hard, he as a television technician and she, subtitling foreign films. They supplemented their income renting out shops and flats. They paid off the mortgage on their primary residence and remortgaged it in 2008, just before the crisis hit, to build a large second home.

In the crisis, both lost their jobs and cannot now meet the bank’s schedule of payments, and all but two of their tenants have left. Their property has become a millstone.

“This is a seizure of my property and my parents’ property, which they earned working so hard overseas,” Aliyianni said. “We shouldn’t work our whole lives for someone to lay hold of what we’ve earned.”

Like many here, Aliyianni said the government should focus more on lowering its overhead. According to the parliamentary report, the Greek state currently costs 53.6 percent of GDP, above the European Union average of 49.3 percent.

Enfia may not have brought demonstrating masses onto the streets, but behind closed doors middle-class voters are quietly smouldering. The criticisms against it are legion. For example, it makes no discrimination between revenue-generating property and property that generates no income at all, such as undeveloped land or vacant office space.

The Hellenic Property Federation, which represents owners, points out [Gr] that the law effectively forces property onto a market that has lost almost a third of its pre-crisis value. It has suggested that multiple property owners be allowed surrender one of their properties against tax debts, but the government insists on cash.

This is a seizure of my property and my parents' property, which they earned working so hard overseas. We shouldn't work our whole lives for someone to lay hold of what we've earned.

by - Gloria Aliyianni, taxpayer

Indispensable tool

Theoharis admits the situation is far from ideal. “I have personally felt it as well that it is a difficult thing to do, but… it is better to clear any backlogs of taxes that we have rather than try to introduce one-off measures that perhaps will affect many more people,” he says. “I’m not sure there were many alternatives and all of them would be equally or more unpopular.”

The problem with Enfia is its effectiveness. It raised 2.85bn euros ($3.84bn) in 2012 on a compliance rate of 82 percent, making it one of Greece’s most successful taxes. Greece’s creditors, the European Commission, European Central Bank and International Monetary Fund, quickly saw it as an indispensable tool in eliminating the government’s deficit.

The threat of asset seizure is only the latest in a series of enforcement measures Theoharis said have reduced the number of tax debtors by 200,000 individuals in the space of a year.

“It’s not scare tactics but pressure on people who owe to change their priorities and pay their debt,” Theoharis said.

Pressure tactics may work with the better-off, but the inability of the less well-off to comply with Enfia is one of its design flaws, said Theodoros Skylakakis, leader of Drasi, a small centrist party that has made the tax its cause celebre.

“[Enfia] started with the hypothesis that about 25 percent of the population won’t pay,” said Skylakakis.

“This creates a terrible social problem. We’re talking about hundreds of thousands of people who cannot pay. This is a rupture of the social contract, which is that 90-95 percent can pay a tax.”

The government has tried to finesse the tax. It lowered it by 15 percent and offered discounts of 50 percent to the unemployed and low-income households. It also tilted more of the burden towards estates worth more than 300,000 euros ($404,000), easing it on three-quarters of property owners.

But Enfia still bristles with perceptions of unfairness because of its nature as a possession tax. The government is toying with the idea of devolving the tax – and its unpopularity – to local authorities.  

But devolution is difficult before Greece balances its books, because the government has to mediate the tug-of-war between its voters and its creditors with delicacy. Greece this month announced an estimated primary surplus of 700m euros 9$944m) for 2013, but it has to squeeze several billions more out of taxpayers before it has a surplus capable of paying down the debt. 

Before the crisis, the Organisation for Economic Co-operation and Development estimated that Greece harboured an unregulated economy of about one-third of its official GDP. The regulated economy has since shrunk by 27 percent, but overall tax revenues have barely fallen, because indirect taxes such as Enfia have more than made up for the drop in income tax revenues [Gr]

The inevitable surmise is that some taxpayers’ ability to pay comes from undeclared money. So while the government has declared the black market economy an official enemy, it is also a principal source of tax revenue and the probable reason why Greek society has so far muscled through austerity.

But Greece’s black gold is a finite reserve. The question is, how long will people’s ability to pay last? The government’s fate depends on how accurately it answers that question.

Source: Al Jazeera