Greeks Turn to the Black Market as Another Bailout Showdown Looms
Few problems are more ingrained, or harder to combat, than the shadow economy, which appears to be growing again as new austerity measures compel once law-abiding Greeks to go off the books. Greece’s black market is estimated at 20 to 25 percent of the gross domestic product, as more people have stopped reporting their income to avoid paying taxes that, by some estimates, have risen to 70 percent of an individual’s gross income.
As of last month, unpaid taxes in Greece had soared to 95 billion euros, up from €76 billion two years ago. Most of that is considered uncollectable.
“The heart of the matter for an ever-rising number of citizens and businesses is that they simply do not have the financial resources anymore to meet their rising tax obligations,” said Jens Bastian, an economist and a member of a team of European Union specialists that helped supervise the country’s earlier bailouts.
Short on alternatives, he said, “many are falling back into the gray economy.”
Shutting down this gray economy is a priority for Greece’s creditors, even as the two sides are bracing for another showdown, with Athens and its creditors arguing over the latest bailout, worth €86 billion. Greece is aiming to strike a deal with creditors by Tuesday, when European finance ministers meet in Brussels to assess if Athens has done enough in overhauling the economy — and combatting tax evasion — to unlock bailout funds.
Blended into that equation is a standoff between the International Monetary Fund and European countries over how much more austerity to require of Greece. The I.M.F. wants European creditors to further reduce Greece’s mountainous debt, now at 180 percent of economic output, warning that it will spiral out of control otherwise.
The European Union is already juggling different crises, including the rise of political populism and the withdrawal of Britain from the bloc, so the possibility of another Greek monetary crisis is alarming. The country risks defaulting on its debts by July, reviving concerns about its place in the eurozone.
Businesses and individuals, meanwhile, are struggling to cope in an economy that suffered a devastating shock in 2015, when Prime Minister Alexis Tsipras imposed capital controls and brought Greece to the brink of exiting the euro. Despite a mild recovery, the economy shrank again in the fourth quarter, leaving many Greeks scornful of promises of growth by Mr. Tsipras, whose popularity has slumped.
An essential piece of Greece’s recovery plan has been to collect more taxes from a population that has long engaged in tax evasion. An independent tax authority was created and auditors were hired, helping to pull in about €5 billion more in revenue than expected last year. But businesses and individuals say they have less to give for taxes that keep rising, and a growing incentive to avoid paying.
Unemployment remains about 23 percent, and for some people the shadow economy is a lifeline. Others see it as a way to prevent a government they don’t trust from putting their money into a black hole, which is the national debt.
Electricians, plumbers, hairdressers, journalists, computer consultants and a variety of other self-employed workers have all taken the plunge. On a recent afternoon, Yiannis, a young television production designer, stood in line in a government office to de-register as a consultant. Had he not, he said, his take-home pay this year would amount to just 30 percent of earnings.
“It’s like they force you to become illegal,” said Yiannis, who, like many people, refused to give his full name for fear of attracting the tax authorities. “Of course I’m going to work on the black market. I need to make ends meet.”
Yiannis said he had also registered a company in Bulgaria, where the business tax rate is 10 percent, so that he could keep issuing receipts for freelance work. Tens of thousands of Greeks have been registering companies in Bulgaria, Cyprus, Luxembourg and other low-tax countries to avoid paying the higher tax bills at home — which means less revenue for Greece’s coffers and creates unfair competition for tax-paying entrepreneurs who could potentially play a bigger role in the revival of Greece’s economy.
Periklis Ladas, 28, opened a small company in 2014 to sell and install safety equipment and fire prevention systems. Despite the crisis, business at the firm, Knox, grew briskly. Soon, though, Mr. Ladas faced competition from shadow economy operators who offered clients cheaper prices.
When he bid on a contract to fireproof a new building, another firm offered to work off the books for half his rate. Mr. Ladas won the job because he provided insurance that the competitor could not. But he had to lower his price, sapping revenue that he wanted to reinvest in the business. More income was lost when clients bought his equipment and hired off-the-book electricians for the installation.
“We’re trying to be responsible,” said Mr. Ladas, who wants to build a future in Greece rather than leave, as his friends have done. “But it’s hard to compete against others who don’t pay the same tax as you.”
The revenue that he does earn is steadily being eaten away. When he opened, he kept around 60 percent of his profit, after taxes. Today, his take is about 30 percent, after tax increases approved by the Greek government to meet budget-cutting and revenue targets imposed by creditors.
“Those who play by the rules are the ones getting punished,” Mr. Ladas said.
Even electricians, in a profession rife with shadow economy workers, complain about the competition. In a brightly lit office in central Athens, members of the national electricians union huddled around a table one evening to discuss their plight.
“We’re fighting against people who don’t pay taxes,” said Emmanouil Kafkalas, the general secretary, adding that at least half of electricians worked in the shadow economy. “We’re losing work because they can charge less.”
An earlier version of a picture caption with this article misidentified Periklis Ladas. He is the man on the left, not on the right.
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