Real estate powering a major redistribution of income

Real estate powering a major redistribution of income

Roger Pettingell Sarasota Real Estate

“‘Seasonal’ home on X island, 105 sq.m., on a plot of 4,584 sq.m., asking price 750,000 euros, objective value 73,731 euros.” Tis is just one random selection from the hundreds of properties listed for sale by large real estate agents looking for interested buyers. Notice the detail about the taxes that the interested party will pay, or, to be more exact, the taxes that, with the blessing of the Finance Ministry, they will not pay?

The commercial value of the property is 10 times the objective value as set out by the public revenue authorities. So, the real estate transfer tax will be calculated based on an imaginary value that is 10 times smaller than the real, commercial value of the property. There is plenty of money going around, it seems.

When it comes to property transactions, and particularly in the country’s more expensive areas, the state is giving out significant tax exemptions. Instead of taxing the commercial transaction of 750,000 euros, it looks the other way and only taxes 73,731 euros. What a bargain! There appears to be a a surplus of what is close to being coined as “fiscal space” for the growth-inducing activity of real estate in the country’s expensive neighborhoods.

But looking at it from a different perspective, what does this reality imply? That while fiscal needs are significant and expected to grow (for tacking climate change, the energy crisis, the modernization of the country’s healthcare system and increased public spending), transactional relationships are what define the country’s tax policy.

Taxes are not reduced equally or for everyone. Inequalities are increasing and the forces that are keeping society together are weakening

This is a policy that is clearly driven by social class. Income taxation preferentially favors income from profits while disproportionately burdening that from salaried labor. According to data from the Organiztion for Economic Cooperation and Development (OECD), the average income tax rate from profits is 59% in South Korea, 57% in Ireland, 55% in Canada and Denmark, 51% in France, 50% in Portugal, 48% in Germany and only 25.9% in Greece.

Low taxation would make sense if it applied to everyone. But it only applies to profits. Income from salaried work is taxed at 28% for over 20,000 euros, 36% for over 30,000 euros and 44% for over 40,000 euros – to which we must add exorbitant social security contributions. Furthermore, we have one of the worst direct-indirect tax ratios in the whole of Europe.

In fact, we are witnessing a large redistribution of income from the poorest to the richest.

This is achieved, first, via inflation. Greece has the highest inflation in Europe, with the exception of countries affected by the war, the Baltic republics and Slovakia. Typically inflation is 12.1%, but for the lower incomes, those ranging from the minimum wage to 1,200 euros per month, inflation is much higher; in fact it is over 25% or 30%. Secondly, via taxation. A major redistribution wave at the expense of the poorest is taking place by keeping value-added tax rates unchanged despite the price boom, bringing in €1 billion more in VAT revenue than originally budgeted. The burden is simply too much.

Taxes are not reduced equally or for everyone. Inequalities are increasing and the forces that are keeping society together are weakening. If these trends are left unchecked, it will not be long before their social and political consequences come to the fore.

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