Greece: The Looming Threat of a Bigger Hole in Public Finances

Last month’s judgement is likely to lead to the coalition repaying about 500 million euros it cut from salaries in the armed forces and police. The details will only be known when the verdict is published, which could take a few weeks longer. The Supreme Court ruling, which was made public on Friday, deems that the emergency property tax introduced in 2011 and levied through electricity bills was unconstitutional.

The verdict applies to the tax for 2011 and 2012, not last year when it was incorporated into a wider property levy. During the two years in question, the government is estimated to have collected more than 2.5 billion euros from Greek taxpayers. The tax was introduced by the then PASOK government, with Evangelos Venizelos as finance minister, as a last-ditch attempt to meet the troika’s fiscal targets despite concerns about whether it would stand up in court.

However, we are still some way from the government having to repay to taxpayers the 2.5 billion euros or so, which is equivalent to roughly 1.5 percent of GDP – a move that would obviously derail its attempt to produce a primary surplus and meet the troika’s fiscal targets.

The verdict was reached by the Supreme Court’s fourth section, not the plenary. Three out of the five judges deemed that the tax was unconstitutional because it taxed people based on the size of their property, which was not necessarily an indication of their wealth, and not on their income. However, because two of the judges disagreed with this interpretation, the matter is now being referred to the Supreme Court’s plenary.

There is no fixed date for when the plenary will convene but it is expected to happen within the next three months. If the judges reject the fourth section’s verdict, the appeal against the tax, which began with a 2012 first instance court ruling, will have reached its end and the government will breathe a sigh of relief.

If the plenary agrees with the fourth section’s ruling then things get even more complicated. The Supreme Court’s decision would clash with a ruling from the Council of State, which last year deemed the emergency tax to be legal but said it was unconstitutional to cut off taxpayers’ electricity if they did not pay.

The only way of resolving this legal contradiction would be for the Supreme Special Court to convene, which does not happen often. Its 11 members would have to deliver a final opinion on whether the tax is in line with Greece’s constitution or is illegal. If they choose the latter, it still will not mean an immediate payout for the government. Instead, armed with the court’s decision, each taxpayer will have to make a separate appeal for the money they paid in 2011 and 2012 to be returned.

Whatever the outcome, the hasty and improvised manner in which Greek governments have taken decisions to meet the various targets they were set is being exposed. With other civil servant groups already appealing cuts to their wages, the government is likely to have many nervous days ahead as it keeps an eye out for court verdicts.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

Be the first to comment on "Greece: The Looming Threat of a Bigger Hole in Public Finances"

Leave a comment