A tax credit for Greece: The significance of an independent public revenue service

Agora Contributor: Nick Malkoutzis
Photo by MacroPolis
Photo by MacroPolis

Despite undergoing three adjustment programmes over the course of eight years, it is widely accepted that Greece emerged from its economic crisis having achieved limited progress in terms of structural reforms.

One of the most significant breakthroughs, however, came in its tax administration, which underwent a substantial overhaul that culminated in the creation of a non-politicised body, the Independent Authority for Public Revenue (IAPR), in 2017.

The long and winding road to achieving this goal has been traced in a new book authored by Argyris Passas, an associate professor at Panteion University of Athens, where he holds the Jean Monnet Chair, and Dionyssis G. Dimitrakopoulos, a senior lecturer in Politics at Birkbeck, University of London, where he directs the MSc programme in European Politics and Policy.

MacroPolis caught up with Dimitrakopoulos after the authors presented their book, The Depoliticisation of Greece's Public Revenue Administration, to discuss why Greek tax collection was in such a bad state, the importance of reforming the revenue service, the role that the country’s lenders played in it and what lessons we can draw from this case for structural reform in Greece going forward.

When the crisis struck, Greece’s tax administration, like the rest of its institutional capacity, was in a dire state, or stuck in the 1930s as one official told you. Based on the research you’ve done, how bad were things and why was tax collection in such a poor condition?'

At the onset of the crisis Greece’s tax collection institutions were in a very bad state. This means corruption, skill shortages, poor organisation, outdated or under-used IT, lack of a clear strategy entailing priorities informed by international best practice, and above all, well-known political and other interference in the day-to-day operation of these institutions. In particular, the party-political affiliation of key officials was a decisive feature in their career. Every time there was a ministerial reshuffle, key posts changed hands. Results (measured in tax revenues) did not matter. The single most significant reason why the country’s tax collection institutions were is such a bad state was the fact that no government (at least post-1974) took tax collection seriously (e.g. we have even witnessed a government that included no minister in charge of tax collection and this as late as 2009). This is mirrored by the country’s culture of low tax compliance more broadly as well as the documented fact that Greece’s broader institutional capacity was very weak (as demonstrated by, for example, the slowness of its justice system etc.). None of this is surprising for anyone who know Greece since many Greeks had (until the return to democracy in 1974) experienced the state as a mechanism of oppression. The flipside of this ‘coin’ is the lack of interest in and respect for ‘the commons’.

The book traces how each Greek administration since the start of the crisis toyed with the idea of creating an independent, or partially independent public revenue service, but never quite managed it. What were the key obstacles or reservations that hindered Greek politicians?

In the book we provide evidence of differences between (very few) reformers and opponents (the overwhelming majority) of this reform. The balance of power between them tilted heavily in 2016 only after the decisive intervention of the IMF (in particular) and to a lesser extent the EU. Mainstream Greek politicians (i.e. those of the centre-left PASOK and centre-right Nea Demokratia) were overwhelmingly against this reform because of corruption, their lack of trust the in that institution (since they had ensured that it had historically operated on the basis of party political affiliation, not results), they did not want to lose this key lever of power, they did not really care about tax collection and knew there were no votes that could be won on the basis of the promise of better tax collection. Those who did understand the nature of this reform presumably did not want to pay the electoral costs of better tax collection.

You highlight that the “depoliticisation” of the public revenue administration was not a goal for Greece’s lenders when the first MoU was signed in 2010. Why was this, and what caused the creditors to change their mind? 

Time pressure, the scale and intensity of the crisis as well as the relative lack of knowledge of the scale of the country’s institutional problems account for this choice. Indeed, who would want to actually go for a full reconstruction of a ship in the midst of a huge storm? Better knowledge of the country’s institutional problems, real experience of reforms (including the cosmetic ones that only appeared in the rule book but never materialised) in Greece as well as two major decisions made by two different Greek governments (for different reasons) resulted in this major change of tack. In particular, crucial were the removal from office of the first and second heads of the country’s tax collection authorities at a time when these authorities were semi-autonomous, i.e. not fully removed from ministerial control. Irrespective of the details of the two cases, these two decisions convinced even the more reluctant members of the ‘Troika’ that this reform had to be carried out precisely because of the attitude of Greece’s political establishment. 

What does the concept of “depoliticisation” mean and what kind of benefits and drawbacks does it entail?

Depoliticisation here means the removal of the country’s tax collection institutions (tax offices, customs offices etc.) from the direct control of ministers (usually elected politicians). The idea here is simple: elected politicians normally make tax law and policy with all the guarantees that parliamentary democracy normally offers (transparency, openness because of the involvement of parliament) but they should then refrain from interfering in the daily operation of the tax collection institutions when a particularly influential individual (e.g. due to party donations, private wealth, media ownership etc.) is concerned; rather all taxpayers ought to be treated equally and in line with the country’s tax law. Similar ‘non-majoritarian’ institutions are thought to be associated with a particularly potent combination of expertise, professionalism and, in particular, disregard for the exigencies of the electoral cycle. The latter is very important in a country where – as evidence shows – tax collection suffers every time there is a national election. All this does not mean that – under its new, independent status – Greece’s tax collection institution is under no democratic control. Rather, it is accountable to parliament. The trouble is that Greek parliamentarians are much more prone to sloganeering than the painstaking, difficult but important evidence-based work that real scrutiny of tax collection normally entails. Another problem is that in a country with a historically problematic tax compliance, many politicians think there is no incentive for them to help this new institution in its very difficult task. So, at present, parliamentary scrutiny of this key institution is rudimentary and superficial at best.    

Your book underlines that Greece went almost from one end of the spectrum, a failing and politically influenced tax administration, to the other, an independent authority at arms-length from ministerial control. What were the key reasons for such a leap and, given what you learnt during your research, was it the only viable option?

In light of the prevailing ethos among Greek politicians, there was no other way to try and improve tax collection. This is demonstrated by two key facts: a) semi-autonomy was – in Greece – only a half measure (as the removal of two heads of the tax collection institution shows, albeit in rather different circumstances) and b) a major party (SYRIZA) rightly pointed out that one ought to clean-up the institution first, did not actually have a plan or skills as to how to do so. Arguing that full independence was – in the end – inevitable does not be taken to mean that it is necessarily a viable option. Of the very large number of MPs who voted for this reform in parliament, very few were those who also argued in its favour on a principled basis. Current Prime Minister Kyriakos Mitsotakis voted for this reform (when he was the leader of the opposition) and his government has recently renewed the mandate of the current officeholder for fine more years. This is good news for tax collection. However, Mr Mitsotakis’ government also appointed several party affiliates as heads of public hospitals despite their lack of expertise etc. The ultimate test will come when the current head of the Independent Authority for Public Revenue (AADE) will need to be replaced: until 2023 the majority in the independent committee that plays a key role in the appointment of this very important officeholder is in the hands of individuals who are not government appointees. This will no longer apply after May 2023, which is when two European Commission officials will cease participating in it. Will the government of the day honour the spirit of the law? I sincerely hope so but seriously doubt it will.   

From where we stand now, the IAPR looks like a success given that its managed to consistently beat its revenue targets and offers a level of efficiency and transparency that was unthinkable a few years ago. Can we regard it as a reform success for Greece, perhaps one of the few of the last decade?

This is definitely the case – especially if we take into account the fact that key internal reforms are still in the process of being implemented (as job description, job evaluation, etc.). I would place this reform alongside the Peponis Law of 1993 that largely ended the practice of corrupt, party political appointments in the public sector (in exchange for votes) and replaced them with open, competitive, written exams and the removal of the country’s statistics agency from direct ministerial control. Together they amount to a kind of revolution but also one that most of Greece’s partners in the Eurozone have taken for granted for decades. 

Looking forward, what does the IAPR experience tell us about reform capacity in Greece and how the country can best approach other areas in which change will be needed in the coming years?

This particular reform shows beyond any doubt that Greece’s biggest problem is inherently internal. In this case the chronic lack of trust in impartial institutions means that, in the absence of overwhelming external pressure, and in the context of the huge problems that the crisis caused ‘for the many’, chances are that this reform would not have materialised. Sadly, the overwhelming majority of Greek politicians did not follow Rahm Emanuel’s famous dictum: “you never want a serious crisis to go to waste […] It is an opportunity to do things you think you could not do before”. In any case, Greece is – in relation to this reform - like a totally new band that releases a wonderful first album or a football team that wins the league title for the first time. It will soon realise that real success is like a marathon, not a sprint. It is up to the Greek politicians and citizens to show they have learned this key lesson.

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