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Tax Reform Key to Greek Recovery, Says IMF

by Ulrika Lomas, Tax-News.com, Brussels

16 December 2016


Greece's failure to overhaul its tax regime is a key reason why it has struggled to emerge from its prolonged fiscal crisis, the International Monetary Fund (IMF) has said.

In a blog piece aimed at countering accusations that it is calling for more fiscal austerity in Greece in return for debt relief, the IMF said that tax reform, while difficult, would be considerably less painful than the deep cuts in public spending and investment that are "hampering growth and the delivery of basic public services."

"Greece still needs to reform the structure of its taxes and spending – how the government raises its money and what it spends it on – because both are highly unfriendly to growth and equity," the IMF said.

While noting that Greece has undertaken a huge fiscal adjustment, the IMF argued that it has done so without addressing to key problems, namely the tax and pensions systems.

According to the Fund, because of a generous tax allowance, around half of households are currently exempted from income tax. By comparison, on average, only eight percent of households are exempted from income tax in the eurozone.

What's more, an "extremely generous" pension system costs around 11 percent of gross domestic product annually to maintain, the Fund observed.

"Simply put, Greece cannot modernize its economy by boosting funding for infrastructure and well-targeted social programs while exempting more than half of households from income taxes and paying public pensions at the level of the richest European countries," the IMF said.

TAGS: tax | investment | pensions | Greece | services | Europe

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