Greece not tough enough on rich tax evaders, IMF says

Greece has not done enough to clamp down on “notorious tax evasion” by the rich and self-employed, leaving those on salaries and pensions to take most of the pain from the austerity measures imposed as part of the country’s €240bn (£202bn) bailout, according to a much-anticipated verdict on its economic measures published on Monday.

The International Monetary Fund, one of the contributors to the Greek bailout, also said – at the conclusion of its mission to the debt-laden, recession-hit country – that a “taboo against dismissals” in the overstaffed public sector had led to a surge in unemployment in the private sector.

Greece has pledged to cut about 20% of the public sector – or 150,000 jobs – between 2010 and 2015 to help reduce spending, but progress has been slow, while unemployment has topped 27%. A bill has been passed recently to allow 15,000 public-sector posts to be axed.

However, the IMF said Greece had made progress in a socially painful recession. It had made “exceptional” improvements on its fiscal position, its competitiveness and preserving stability in the financial sector. “The achievements to date are evidence of a very strong and persistent determination on the part of Greece and its European partners to do whatever it takes to restore Greece to a sustainable situation inside the euro area,” the IMF said.

The debt-to-GDP ratio for Greece is around 160%, but the IMF has called for this to be cut to 120% by 2020, resulting in the imposition of tough conditions.

But restoring growth to the country is “the overarching precondition of whether Greece succeeds”, according to the IMF. In the face of criticism that some of the problems were caused by austerity measures, the Washington-based fund said that the deeper-than-expected recession was caused by a loss of confidence, concerns about a euro exit and political uncertainty.

The IMF is concerned about the lack of structural reforms, which has left the rich relatively untouched in an economy where 70% of the income is declared by wage earners and pensioners. “Very little progress has been made in tackling Greece’s notorious tax evasion. The rich and self-employed are simply not paying their fair share, which has forced an excessive reliance on across-the-board expenditure cuts and higher taxes on those earning a salary or a pension,” the IMF said.

The government’s medium-term reform programme assumes an improvement in tax collection of 1.5% of GDP, but the IMF regards this as “very ambitious”, given progress so far. It said that, as well as improving tax collection, reform of the labour market was needed to open up competition, and more should be done to pare back the public sector. “Decisive corrective actions are needed in each of these areas to promote an early supply response and achieve a more balanced distribution of the burden of adjustment,” the IMF said. “The mission welcomes that the government is refocusing its programme in recognition of these problems.”