Greece was mired in debt and the initial situation was dramatic, but the country gradually modernized and the most remarkable thing is that the successes were not achieved mainly through tax increases. How did this happen?
The changes were carried out as in a modern company. And Greece, which was previously mired in debt, will this year be one of the three countries in the eurozone with a positive budget balance, writes "Handelsblatt", based on the EC's forecasts. The International Monetary Fund also believes that Greece is fiscally sound enough to weather external shocks such as the Middle East conflict.
Comprehensive fiscal restructuring
This is largely due to tax administration reforms, a study by the fund found. The deep fiscal restructuring is “one of the drivers of Greece's comprehensive economic recovery”, the study authors wrote. The “impressive turnaround“ achieved by the country, which was plunged into a deep crisis, offers “valuable lessons for other countries seeking to reform their tax systems“.
In 2010, when the European Union and the International Monetary Fund (IMF) activated the first rescue plan for Greece, the country's tax administration was considered a symbol of failure: sluggish services, corruption, political influence, systematic non-payment of taxes. Today, as the IMF study finds, the Greek financial administration is an example of how a country in crisis can reinvent itself through institutional reforms and digitalization.
Three phases of modernization
The initial beginning was dramatic, recalls "Handelsblatt". In the midst of the debt crisis, trust in the state collapsed, tax revenues collapsed, the administration worked with fragmented structures and a lot of bureaucracy. As the IMF noted from the very beginning, the problem was not only tax policy, but also the lack of determination on the part of the authorities. Then the transformation went through three phases, just like in a modern company, the German publication writes. From 2010 to 2012, it was first about survival.
The state imposed strict measures, increased VAT and strengthened controls - so that it could quickly collect revenues. In the second phase from 2013 to 2017, the real institutional change followed. Greece modernized its laws and optimized structures. The number of financial services was reduced from 288 to 119, while their work was reorganized.
In 2016, the independent Public Revenue Service was created, free from political influence. In the third stage, from 2018 onwards, the digital era began. Greece introduced real-time reporting systems and automated data matching. The use of artificial intelligence (AI) and analytics gradually transformed the Greek tax administration into a data-driven organization. And in the early 2020s, Greece was among the pioneers of digitalization in the EU in a number of areas.
How revenues were increased
Most notably, the fiscal successes were not achieved primarily through tax increases. Since taking office in 2019, the government of conservative Prime Minister Kyriakos Mitsotakis has reduced or abolished over 80 taxes. This increased the collection of debts and ultimately increased state revenues.
Thanks to digitalization and the use of artificial intelligence (AI), successes were also achieved in the fight against tax evasion, points out "Handelsblatt". AI helps to register and recognize fraud schemes. The IMF study found that particularly good results were achieved in VAT, where uncollected tax debts in 2018 were still 23 percent, and last year they fell to 9.5 percent, which is the EU average.
The German publication writes that this is a very important indicator for economists - since higher revenues favor growth and are a more sustainable factor for success than tax increases. Meanwhile, the IMF sees this plan as one of the most effective instruments of modern fiscal policy. At the same time, other factors are improving in Greece - the accuracy of payments, the precision of tax audits, the speed of services for citizens and businesses.
However, not everything is rosy, writes "Handelsblatt" regarding the IMF study, according to which the reform process was not implemented completely smoothly, it was not without contradictions and resistance. Modernization was repeatedly hindered by staff shortages, budget problems and political conflicts. Some digital tools were hardly used at the beginning, although they were available. Digitalization was only strengthened with the establishment of the Public Revenue Service and the inauguration of the Mitsotakis government.
The main conclusion
The main conclusion that the IMF makes is that digitalization functions sustainably in the tax administration only when the institutional foundations for this have been created - in this case, through the establishment of the Public Revenue Service. Because technology cannot replace governance.
That is why Greece can serve as an example to other countries, as many countries today struggle with similar problems: high debts, increasing pressure to spend, political polarization and a population that has only limited trust in the state and its fiscal policy. The example of Athens shows: administrative reforms produce results, but not quickly and only if there is the corresponding political will. According to the study, consistent efforts over several mandates were decisive.