In his letter to the European Commission, the ECB and the IMF outlining the reform proposals of the new government in Athens, Greek finance minister Yanis Varoufakis raised an interesting concept — a Guaranteed Basic Income.
Greece has a well-known problem with tax collection — it can’t seem to do it. According to OECD figures the country only succeeded in collecting just over half the tax revenue that it was owed in 2010. And even more potential revenue is lost through both professionals significantly underreporting their incomes, as Business Insider revealed.
This has left the state being owed some €76 billion in unpaid taxes (that it knows about), most of which the government has almost no chance of ever getting back. So severe is tax evasion in the country that the Syriza-led government is offering a tax debt forgiveness scheme whereby debtors who offer to pay at least €200 could receive a 50% cut to their debt obligations.
Unfortunately, this scheme is only estimated to raise around €9 billion, although every euro in tax revenues counts at this stage.
With tax collection at such low levels, part of the problem must be both a deep distrust of state institutions by the general public and a consensus that there will be few repercussions for tax evasion. As Varoufakis says in his letter, one of the key aspects of the government’s reform proposals is not only to clamp down on fraud and evasion but also, crucially, to “strengthen incentives to declare paid work”.
This is where a Guaranteed Basic Income — a regular payment made directly by the state to people’s bank accounts without the need to means check or include a work requirement — can help boost the state’s bargaining position.
- Firstly, a basic income paid directly into people’s bank accounts lowers the frequency of interaction with the state and therefore reduces the opportunity for corrupt practises to develop.
One of the problems that Greece has had since the 1980s is a culture of “clientelism” (where the ruling party props up its share of the vote by making its supporters reliant on state largess) driven by the rise of the populist
Pan-Hellenic Socialist Movement (PASOK) party. This has led to a bloated and inefficient public sector prone to unnecessary bureaucracy and corruption.
A 2013 Survey for petty corruption in Greece by Transparency International estimates that Greece lost €398 million to corruption, predominantly in the public sector. Although that is not in itself a huge figure, and indeed represents a reduction from €475 million paid in bribes in 2012, routine corruption fuels the distrust of state institutions and increases the incentives to find ways around the system.
- Secondly, this type of scheme does not suffer from the perverse incentives of existing means-tested welfare schemes that are withdrawn as recipients start to earn more.
Under means-tested welfare policies taking a low-paid job can result in people losing as much in state benefits as they gain in income from working. With most systems, this problem is compounded by the fact that once people fall off particular benefits they subsequently have to go through a complicated re-application process if they then lose their new source of income.
Together these can drastically reduce the appeal of seeking work and can lead to what people call a “benefits trap”. However, with a basic income this problem is avoided as the money continues to be paid despite the recipient earning more. This has the additional benefit of encouraging people firstly to sign up for a basic income and then to declare this new income by removing the fear that this would result in losing their welfare payments as a result — bringing more workers from the so-called “black economy” back into the tax system.
- Thirdly, it allows the government to go after the more serious cases of tax evasion and fraud.
The mountainous task facing the new Greek authorities is both one of breadth and depth of the dysfunctional workings of the tax system. By removing incentives for the very low paid to keep their incomes off the books the government can reduce the sheer breadth of the problem of tax collection, allowing it to focus its attention on serial offenders with deeper pockets.
This can be achieved both directly, through an aggressive campaign to go after those who under-report their incomes, but also indirectly by attempting to shift the social norms from seeing tax as state theft to making compliance a virtue. A basic income can support both projects, providing it goes hand-in-hand with deep reforms of the public sector in order that people can see the state reacting to their concerns.
Overall, a Guaranteed Basic Income is not the sole answer to Greece’s problems but it could be a powerful tool in the government’s reform agenda. If it is used in the effort to break, rather than reinforce the clientelism of the past few decades it could form the basis of a new, healthier relationship between the state and its citizens.
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