According to the Greek Parliamentary Budget Office, there’s a staggering gap between what people declare they earn and how much they spend. In 2023, declared income totaled €110 billion—but household consumption was €151 billion. That €41 billion difference points directly to undeclared income as opposed to overspending, because savings rates in Greece are increasing, according to an article in iefimerida.
Why does it matter? Because that unreported economic activity translates into €8–9 billion in lost tax revenue every year. To put that into perspective, just one major tax cut- the repeal of Greece’s unpopular property tax (ENFIA)- would cost €2.5 billion. In short: cracking down on hidden income could open up real space in the budget for meaningful tax relief or better funding for healthcare and education.
Progress on VAT: A Shrinking Gap
One area where Greece is closing the gap is value-added tax (VAT) collection. In 2017, the European Commission estimated that Greece was losing about €7 billion per year in unpaid VAT. Today, that number is closer to €3 billion, and dropping. New digital tools—like real-time invoice reporting (myData), mandatory point-of-sale systems, digital labor cards, and e-invoicing—are starting to make it harder for businesses to operate off the books.
Even so, Greece still has one of the worst VAT collection records in the EU, ranked 5th from the bottom in 2023, behind only Romania, Malta, Slovakia, and Latvia. About 13.7% of Greece’s potential VAT revenue still goes uncollected, compared to an EU average of 6.9%.
How to Use the Gains
If Greece manages to recover more of this lost revenue, where should it go?
Economists argue it should be used to lower direct taxes, especially for middle- and low-income earners. Today, Greece’s income tax system jumps from a 9% rate straight to 22% at relatively low income levels. There’s also a 44% top rate that kicks in at just €40,000—far lower than in most Western countries. Reforming this steep tax curve could ease pressure on workers and families.
By contrast, cutting indirect taxes like VAT isn’t considered as effective right now, because those savings often get absorbed by intermediaries rather than passed on to consumers. Greece also depends heavily on these taxes: in 2023, consumption taxes made up 15.2% of GDP—one of the highest rates in Europe.
Could a Flat VAT Rate Work?
The European Commission recently floated a hypothetical idea: what if every EU country ditched their complex patchworks of VAT exemptions and lower rates, and adopted a single, uniform VAT rate?
Their analysis found that a flat rate of 16.7% could generate the same revenue as the current system—possibly allowing countries like Greece to lower standard VAT rates without losing income. While such a move isn’t on the table politically, it highlights how simplifying the system could make it both fairer and more efficient.
