What's going on with Greece capping the amount of cash one can spend?
February 15, 2010 5:05 AM Subscribe
From a Reuters newsreport about Greece's government response plan to their economic meltdown: "From 1. Jan. 2011, every transaction above 1,500 euros between natural persons and businesses, or between businesses, will not be considered legal if it is done in cash. Transactions will have to be done through debit or credit cards" Are they doing this for any other reason than making it easier to collect a sales tax? How can they enforce it? What will happen if someone pays for an item with over 1500 euros in cash, will someone repossess it? Have other countries done something like this?
This Economist article might give you some interesting background for the reasons behind the policy.But it sounds like a counter-measure for the country's high rate of under-reporting of income. To quote:
posted by rongorongo at 5:32 AM on February 15, 2010
The first challenge is to induce citizens to show a modicum of honesty in declaring what they earn. Over 95% of individual tax returns are below €30,000, and only a few thousand citizens admit to receiving more than €100,000. To see how little this corresponds to middle-class Greek reality, you need only visit one of the flourishing and over-subscribed private schools in greater Athens. There, in return for handsome fees, pupils are groomed for elite colleges in Europe and America.
posted by rongorongo at 5:32 AM on February 15, 2010
Best answer: It has a lot to do with the current state of the economy, actually. Greece's financial situation is dire enough that the government is in a state where uncovering corruption and fraudulent financial activity (avoiding taxation) is pretty necessary both to atempt to fix the problem and to meet some of the austerity measures necessary to secure foreign loans.
I don't think this has much to do with collecting a sales tax per se (though that's part of it.) It's got a lot more to do with making it harder for the wealthy to hide their income, since if you've got the money to spend on something expensive (now tracked, in theory), you'd have to show equivalent legitimate income in order to justify it. Basically, this move is all about being able to better monitor individual financial activity, so that a realistic picture of someone's income can be created.
The positive side of this is that individuals will be much more likely to report their true income, since just one "honest" person along a line of financial transactions can more easily trip up everyone else. Enforcement will likely be what it is in more developed countries - the costs involved in getting audited and caught make honesty the more financial prudent way to live - so no, it's unlikely that anything will be repossessed. Probably the transaction will be penalized and taxed at a punishing rate.
The downside, of course, is that most people in Greece are used to living in a largely cash-based society, and thus they historically have lived within their means. This move is indicative of a trend towards "virtual" money in the form of credit cards, and this can be disastrous.***
By way of Balkan comparison, it used to be, in the former Yugoslavia, that at the end of the work week, individuals were given a slip of paper, which they took to a cashier to receive their pay in cash. Credit cards and checks were unheard of, though of course many people put their money in the bank for saving. Functionally speaking, this made it pretty hard to get into debt, unless you were gambling or taking out the equivalent of loanshark loans, which wasn't any more common there than in America. (Even big purchases, such as houses, tended to be paid for in cash and in full, although real estate sales were unusual, as housing tended to either have been in the family for generations or was provided by the state.) Nowadays, people are often paid through direct deposit and credit cards have become much more common - I don't think I knew a single person who had a credit card when I lived there, and certainly no one except businesses catering to tourists could accept them. Like Greece, the former Yugoslavia sees a lot of corruption and tax avoidance by the wealthy. I don't know if they have similar laws, but it's pretty obvious that the "push" towards recordable financial activity is part convenience, and part "trackability."
*** In Hungary, Romania and Bosnia recently, I've encountered people now stressed about their huge credit card debt. *Any* credit card debt would have been unheard of a decade ago. So the conspiratorial-minded may see these moves as attempting to create bigger economies via consumer debt.
posted by Dee Xtrovert at 7:09 AM on February 15, 2010 [6 favorites]
I don't think this has much to do with collecting a sales tax per se (though that's part of it.) It's got a lot more to do with making it harder for the wealthy to hide their income, since if you've got the money to spend on something expensive (now tracked, in theory), you'd have to show equivalent legitimate income in order to justify it. Basically, this move is all about being able to better monitor individual financial activity, so that a realistic picture of someone's income can be created.
The positive side of this is that individuals will be much more likely to report their true income, since just one "honest" person along a line of financial transactions can more easily trip up everyone else. Enforcement will likely be what it is in more developed countries - the costs involved in getting audited and caught make honesty the more financial prudent way to live - so no, it's unlikely that anything will be repossessed. Probably the transaction will be penalized and taxed at a punishing rate.
The downside, of course, is that most people in Greece are used to living in a largely cash-based society, and thus they historically have lived within their means. This move is indicative of a trend towards "virtual" money in the form of credit cards, and this can be disastrous.***
By way of Balkan comparison, it used to be, in the former Yugoslavia, that at the end of the work week, individuals were given a slip of paper, which they took to a cashier to receive their pay in cash. Credit cards and checks were unheard of, though of course many people put their money in the bank for saving. Functionally speaking, this made it pretty hard to get into debt, unless you were gambling or taking out the equivalent of loanshark loans, which wasn't any more common there than in America. (Even big purchases, such as houses, tended to be paid for in cash and in full, although real estate sales were unusual, as housing tended to either have been in the family for generations or was provided by the state.) Nowadays, people are often paid through direct deposit and credit cards have become much more common - I don't think I knew a single person who had a credit card when I lived there, and certainly no one except businesses catering to tourists could accept them. Like Greece, the former Yugoslavia sees a lot of corruption and tax avoidance by the wealthy. I don't know if they have similar laws, but it's pretty obvious that the "push" towards recordable financial activity is part convenience, and part "trackability."
*** In Hungary, Romania and Bosnia recently, I've encountered people now stressed about their huge credit card debt. *Any* credit card debt would have been unheard of a decade ago. So the conspiratorial-minded may see these moves as attempting to create bigger economies via consumer debt.
posted by Dee Xtrovert at 7:09 AM on February 15, 2010 [6 favorites]
Best answer: The sales tax is part of the deal. The most important issue is that many Greeks under-report their income when filing. Therefore, the burden of taxation falls squarely on people whose sole source of income is their salary/wage, which can be tracked through their employer and/or social security. Meanwhile, a big part of the population, which does not only include moneyed folks but also small-time self-employed people or employees of small businesses, can declare an income that falls under the lowest non-taxable bracket and get off scot tax free.
One way to get around this are flat taxes (gas hiked 20%, same for "sin taxes") while the government tries to track more people's income to tax accordingly. I suppose the transaction limit will focus on the side of the businesses, which are easier to scrutinize, and create a trail of their clients' standard of living.
This measure isn't really a matter of discussion here, but everyone and their grandma are collecting receipts to justify tax-deductible expenses. Two strikes (farmers, civil servants) have already fallen through and I don't trust the strike of the gas-station owners doing any better. It's kind of hard to justify not giving receipts when things are tough.
I hope we take advantage of the occasion to become more efficient and destroy some of the mechanisms that create corruption. We are getting socked anyway, but the more we have to live up to IMF-like doctrines, the worse off we will be.
The downside, of course, is that most people in Greece are used to living in a largely cash-based society, and thus they historically have lived within their means. This move is indicative of a trend towards "virtual" money in the form of credit cards, and this can be disastrous.***
Historically, but personal debt has been growing for a decade, funding a lot of consumption since the stock market crash of 2000. It's still at lower than average European levels (according to some FAZ data public+personal Greek debt is at roughly average euro-levels) and small transactions are mainly cash-based.
posted by ersatz at 12:33 PM on February 15, 2010
One way to get around this are flat taxes (gas hiked 20%, same for "sin taxes") while the government tries to track more people's income to tax accordingly. I suppose the transaction limit will focus on the side of the businesses, which are easier to scrutinize, and create a trail of their clients' standard of living.
This measure isn't really a matter of discussion here, but everyone and their grandma are collecting receipts to justify tax-deductible expenses. Two strikes (farmers, civil servants) have already fallen through and I don't trust the strike of the gas-station owners doing any better. It's kind of hard to justify not giving receipts when things are tough.
I hope we take advantage of the occasion to become more efficient and destroy some of the mechanisms that create corruption. We are getting socked anyway, but the more we have to live up to IMF-like doctrines, the worse off we will be.
The downside, of course, is that most people in Greece are used to living in a largely cash-based society, and thus they historically have lived within their means. This move is indicative of a trend towards "virtual" money in the form of credit cards, and this can be disastrous.***
Historically, but personal debt has been growing for a decade, funding a lot of consumption since the stock market crash of 2000. It's still at lower than average European levels (according to some FAZ data public+personal Greek debt is at roughly average euro-levels) and small transactions are mainly cash-based.
posted by ersatz at 12:33 PM on February 15, 2010
I forgot to mention that a year ago, in Romania, I was at a pensiune where I stayed with friends for a couple of days. We paid in cash, as is the custom. But when I asked for a receipt, I was told that rooms with a receipt were 10% more! You don't see this as much, but it still happens and was once pretty common throughout the former-Communist world, especially in the more "eastern" parts. But given the common existence of this sort of thing in cash-based societies, you can kind of understand how much legitimate income governments lose.
posted by Dee Xtrovert at 5:02 PM on February 15, 2010
posted by Dee Xtrovert at 5:02 PM on February 15, 2010
Response by poster: Thanks! I now understand this a lot better.
posted by Kattullus at 5:52 PM on February 17, 2010
posted by Kattullus at 5:52 PM on February 17, 2010
This thread is closed to new comments.
posted by _dario at 5:26 AM on February 15, 2010