Tax decentralization with particular emphasis on ENFIA proposes to the Government the Governor of the Bank of Greece (BoG) Giannis Stournaraswith the aim of enhancing the financial autonomy of municipalities and rationalizing the state budget, by reducing transfer payments to Local Government.
In his annual report on the Greek economy, Yiannis Stournaras emphasizes the need to manage and collect the real estate tax of € 2.3 billion to be entrusted to Local Government Organizations (OTAs). It should be noted that ENFIA, as a tax levied on real estate within the geographical boundaries of each municipality, could operate more effectively when managing locally.
Municipalities have a closer knowledge of the tax base, which could lead to a reduction in bureaucracy, better detection of undeclared real estate income and targeted revenue for the needs of the local community. At the same time, tax reciprocity will be reinforced, as the money paid by citizens will return to local infrastructure, social services and projects that directly reflect the priorities of each region.
The BoG’s proposal is not irrelevant to the fact that Greece is in the last position among European states in terms of tax decentralization, with only 2.94% of tax revenue management by local authorities when the European average reaches 12.64%. Transferring the management of ENFIA to municipalities could overturn this image, giving them greater economic autonomy and better ability to meet local needs.
In addition, the measure could help reduce bureaucracy and save administrative costs, as municipalities are better equipped to identify and fight tax evasion, thanks to their knowledge of real estate and use in their area.
Pros and cons
The BoG points out that this is a “difficult task” that would require careful planning at the transition stage, to avoid ineffective shapes that would limit tax reciprocity, lists the advantages and disadvantages of the proposal.
In the favor points out that:
- It is a tax with limited tax evasion margins, because the tax base, that is, the property, cannot be easily altered in tax returns.
- Property tax is also a neutral tax, in the sense that changes in tax rates are not linked to tax base distortions.
- Thus, the Local Government, undertaking the collection of ENFIA, will not have to bear the high cost of a tax mechanism, as it will have the advantage of the best knowledge of real estate and its use within the boundaries of its geographical region. This knowledge will allow the Local Authorities to in addition to the fight against tax evasion by helping to better detect real estate income (eg undeclared).
- Tax revenue will help to boost the financial self -reliance of Local Authorities and enable them to respond more targeted to local needs (eg developing local infrastructure and services), ensuring tax payability.
At the same time, transparency in the use of resources and the accountability of local authorities is reinforced against citizens who pay taxes. As a result, it helps to cultivate tax responsibility and tax consciousness to citizens.
This tax tool could be used by OTA redistributively, based on the criterion of Horizontal and Vertical Equity so that taxpayers with the same property and the same tax capacity to tax themselves. For example, property taxation could include exemptions and discounts for specific categories of citizens (eg elderly, low -income people, etc.) and/or impose a progressive tax rate depending on the value of the property, as in France, Denmark and Ireland.
Good management on the part of the local authorities strengthens their credibility, which potentially expands their funding horizons and their ability to intervene to improve the daily lives of the inhabitants of each area. Such a reform would therefore create the need to evolve local bodies with technocratic infrastructure and know -how, capable of contributing to the modernization and development of local communities and, by extension, the country.
Regarding the execution of the state budget, the effective management of ENFIA by the Local Authorities could contribute to rationalizing and saving public spending, as well as to saving administrative costs resulting from intra -government transfers.
Regarding the disadvantages of the management of ENFIA by municipalities, there is a visible lack of technocratic infrastructure for the majority of municipalities and the need to educate and familiarize them with the relevant tools. This is not independent of the size of the municipalities – in addition, it is a challenge as the effective management of the property tax requires know -how, experience and specialized staff, the implementation of which depends on the will of the municipalities themselves. Such an effort is inevitably linked to increased administrative costs in the medium term and possibly to the risk of mismanagement, but will be offset by more direct accountability to local communities.