Mr Stournaras and bad Economics.

I have been compelled to write this blog having watched a couple of days ago an interview by Stournaras Greece's economics minister on television and his attempts at explaining his economic policies to the Greeks.

In particular, a number of his comments such as " The property tax is the fairest tax on the Greeks" and comparisons with the UK to the tune of " The property tax is much higher in the UK than Greece".

I will attempt at explaining how wrong he is on both counts. I will confine myself to his comments on the  property tax only because I believe it has in itself been responsible for much of the current destruction of wealth in the Greek economy and the annihilation of the middle class in total contrast to his assertion and hopefully prove that Mr Stournaras is single handedly responsible for Greece's current malaise. In short Stournaras is bad for Greece's health particularly because he fervently believes in his own fallacy.

We all know by now that Greece had been partying in the new millennium with borrowed money and anyone with the absolute minimum knowledge of basic economics understands that such profligate behaviour can quickly become unsustainable and it did creating a gigantic debt and as a consequence an inability to service it in a great recessionary environment. The net result insolvency and ultimately bankruptcy. To the rescue the EU and the Troika with their well known recipes.

Now Greeks had always been prudent savers and a substantial part of their life time savings had manifested themselves into property. In fact Greeks have one of the largest percentage of property ownership amongst OECD countries vis a vis its total population. This number is close to 80%. By way of contrast in the UK where house ownership is also popular owner occupancy is 65%. It was estimated and this is very rough that perhaps more than  25% of Greece's GDP is its black economy and that if the government were to crack down on tax evasion it would have solved  a considerable part of its budget gap. Unquestionably with such high percentages of owner occupancy and the black economy it follows that a measurable amount of this money must have gone to buy property in Greece. Now one of the basic pillars of Stournaras tax on property is this, that since a substantial part of the black money must have been invested in property we must tax property ownership to catch this laundered money. When first confronted with this purportedly equitable proposition my reaction was there is some merit behind it, however it has MAJOR disruptive and destructive flaws. First it unjustly taxes the owner who has been a responsible and tax paying citizen,who has bought his property on taxed income and has paid a hefty more than 10% to the government by buying it . Second it has a recurrent element which is highly destructive. The government should be taxing this shadow untaxed money once not annually ad infinitum for then it shrinks the Net Present Value of these assets and thus destroys THE MOST IMPORTANT STOCK OF CAPITAL IN GREECE with its banking and other repercussions.Third, it is  highly unjust as it is a tax on a non income generating asset, in most cases, which maybe the largest if not the total saving of many households. Its effect is the wiping out in property values as potential buyers differ purchases owing to the punitive nature of such a tax and  more importantly driving frugal households to annihilation as they become unable to sell their liability generating asset in a collapsing market to pay their taxes  leading to a dead end and confiscation. In other words Mr Stournaras has created a monster with devastating vicious circle consequences for Greeks's wealth and their well being.  

Returning to the proposition and Mr Stournaras's assertion that the UK's property tax rate is higher than that which may be applicable in Greece here Mr Stournaras is totally misinformed to say the least. There is no tax for owning a property paid to the UK government and there is only a UK council tax paid to the municipalities of each property. This council tax very much depends on the location of the property but is nowhere close to the level of tax proposed by Mr Stournaras not even 1/10 of that level and of course is payable to the council not the central government.

It is about time Mr Stournaras wakes up to the follies of his property tax and revisits his Economic textbooks.

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