Expensiveness: the government’s “secret weapon” to finance budget surpluses

Expensive became “hidden weapon” of the Mitsotakis government: the higher the prices on the shelves, the more VAT collects the state while citizens become poor.

Greek government loves to talk about rising wages, pensions and budget successes. On paper, everything looks almost festive: incomes are growing, there is a surplus, the economy is holding up. In real life, many Greeks run out of money after 18thand sometimes earlier.

The main focus of this beautiful accounting is simple: the authorities show nominal wage growthbut much less is said about the fact that over the same years prices for food, energy, fuel, services and housing have increased much more. That is, a person seems to receive more, but buys less. A very convenient form of “prosperity”, especially if you look at it from a ministerial office, and not from a queue at a supermarket.

VAT as a hidden excess income machine

In conditions of high prices, the state finds itself in an almost ideal position. The higher the price of the product, the more VAT goes to the budget. A citizen buys less, saves on everything, cuts expenses, but the state treasury still receives more from each purchase.

This is where the so-called “super surpluses”. They are presented as evidence of a successful policy. But much of this success is built not on real growth in purchasing power, but on indirect taxation of high prices. Simply put: prices are rising, VAT is rising, the budget is smiling. Citizen – not so much.

Official data does show strong fiscal results, with Greece posting large primary surpluses and tax revenues remaining an important part of that success. At the same time, the discussion about reducing VAT for food and essential goods regularly comes up against a simple answer from the authorities: the budget will lose revenue. Well, of course. When a citizen pays more, the state really doesn’t want to spoil such pleasant mathematics.

Wage growth has not caught up with price growth

What can you buy for 1 salary in 2019 and 2026

The government is willing to talk about increasing wages. But a nominal increase in itself does not prove anything. If the salary increased, conditionally, by 40%and daily expenses in certain categories increased by 50–80%then the person did not become richer. He simply became poorer with a nicer figure on his payroll.

The real measure of well-being is not how much is written on a salary, but how much a person can buy after paying rent, bills, gas, food and medicine. And here the Greek reality looks much less solemn. After the middle of the month, many families begin not with “economic growth”, but with an exercise in survival until the next paycheck.

Who benefits from high prices?

The consumer loses from inflation, but the government receives more taxes. Small business loses because expenses are rising and real demand falls. The losers are retirees, families, renters, and workers on fixed incomes. But the budget gets a beautiful picture: revenues are higher, the surplus is better, reporting shines.

If growth were real, I would grow first of all purchasing power. People could buy, save, and plan more. Instead, they often choose what to give up: meat, travel, repairs, doctor, vacation, gasoline. And from this savings of citizens, the state collects its victorious surplus.

Therefore the phrase “the state wins while the citizen loses” This is not a journalistic exaggeration. This is a mechanism. How the more expensive a shelf in a supermarket, the greater the state’s tax share. The heavier the check, the better the budget statistics.

A very Greek success: the people are getting poorer, but the government’s reporting tables look cheerful.

Sources: Reuters, Reuters, Money Review, Greek Ministry of Finance

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