Greek oil taxes – the real story

A guest post from Ventana colleague Marios Kagarlis, who writes about the NYT article on Greek heating oil taxes:

The problems in Greece are interdependent and all have their roots at the fact that the model of government that has been the status quo in Greece since WWII isn’t working and needs radical change, but the people who run the system know no other way, so the problems keep compounding with no solution in sight.There used to be two tiers of taxation for oil: one was for heating oil, which was relatively low, and the other was for oil used for all other purposes (e.g. for diesel cars etc) which was taxed at about 100% over the fuel cost.

Because of the inability of the government institutions to enforce the laws in Greece (which on paper are tough but in practice are not enforced because the system is incompetent), there has been widespread abuse of this: from refineries to gas stations, many oil merchants have been branding diesel as heating oil to evade the tax, and then selling at as non-heating oil, doubling their profit and ripping off both the consumers and the government.

The government has for years been attempting (supposedly) to crack down on this, with pitiable results. The international lenders have demanded from the Greek government, as a precondition for the continuation of the bailout installments paid every now and then (essentially going in their entirety toward servicing past debt, as opposed to relieving the economy), to crack down on tax evasion via illegal diesel sales of ‘heating oil’ as non-heating diesel. Because the tax collection system is broken and cannot control the diesel market or collect the taxes due, the Greek government had to do something quickly to meet the lenders’ demands. And this was the best they could come up with…

So they finally decided to do away with the two separate tiers of taxation and tax all oil as non-heating oil. To make up for the huge rise in cost to the end consumer they established obscure and bureaucratic criteria for lower income families to submit applications to the government for partial reimbursement of the extra tax, the idea being that this would deprive the sellers from a means to cheat and would still enable end consumers in need to get reasonably priced heating oil after reimbursements. However this didn’t work and instead people just massively stopped using oil for heating, which is by far prevalent in Greece (another government failure, for a country with no oil resources and lots of sun and wind). There are entire older building blocs in cities that were built without fireplaces (which up until recently in modern city apartments were more of a symbol of affluence than of any practical use – people essentially never using them) that have just turned off heating altogether, and fights amongst tenants are commonplace for disagreements over whether to turn on heating or not (which in older buildings is collective so it’s heating for all or for none). Those who cannot afford it just don’t pay so sooner or later most buildings in working class neighborhoods are forced to abandon central heating and sustain the cold or improvise.

Because the government again hadn’t foreseen any of this, and wood burning was never particularly widespread in Greece, there had not been standards for wood or pellet burning stoves. So the market is flooded with low quality wood-burning stoves which are totally inefficient and polluting. So suddenly from December the larger cities in Greece are filled with smog and particulates for the first time from inefficient wood-burning stoves, and from burning inappropriate wood (e.g. people burn disused lacquered furniture at their fireplaces, which is very polluting). Cases of asthma and respiratory illnesses in the larger cities since December have skyrocketed. In the meantime forests and even city parks are raided daily by desperate unemployed people who cannot afford heating (especially in northern Greece), who cut down any trees they can get their hands on.

It’s hard to see that there can be any short term solution to this, in the middle of the worst economic crisis Greece has faced since WWII.

Marios lives in Athens.