Taxation 2

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1. What are the two reasons for Greece’s fiscal problems?

2. What is tax morale?

3. Is it high in Greece? Why / why not?

4. What does the author mean when he writes that Greece’s tax system is “unduly regressive”?

5. How is the Greek government trying to solve this problem?

TO DEFAULT – To be unable to repay a loan.

AUSTERITY PLANS – A government’s efforts to reduce public spending to try to shrink budget
deficits.

A BAILOUT – The act of offering financial assistance to a failing business or economy to prevent it
from going bankrupt.

SHADOW ECONOMY – Businesses offering legal goods and services but not paying taxes on their
income.

LAW ENFORCEMENT – Ensuring obedience to the law.

TAX INCOME/TAX REVENUE – The income that is gained by governments through taxation.

TAX SYSTEM – A legal system for assessing and collecting taxes in a country.

TAX MORALE – How much taxpayers obey the tax laws of a country.

TAX EXEMPTION – Freedom from a certain tax usually given by governments to encourage some
types of activities or businesses.

TAX: ENFORCEMENT, REVENUE, SYSTEM, OFFICIALS, LAW, MORALE, COMPLIENCE, EVASION,

EXMPTION, REVENUE, RATE

Tax evasion is illegal, tax avoidance is legal.

The country is not collecting enough in tax revenue so there is not enough money in the budget for
education and health care.

Most countries have a progressive income tax system/rate.

Tax officials are responsible for enforcing the tax laws. In countries where tax enforcement is low,
tax moral is also low, i.e., people do not pay their taxes and they are often proud of having evaded
the highest possible amount of taxes.

There is a tax exemption on gifts and inheritances in Croatia.

My neighbor didn’t have to pay anything when he inherited his grandmother’s house.

According to many economists, the country should carry out a tax system: VAT and income taxes
should be reduced.

They argue that lower tax rate would encourage investment and entrepreneurship and would also
reduce the number of people who cheat on taxes.

Privatization 1

Important issues when talking about privatization

The way privatization happens – Corruption?

The effects of privatization:

- More efficient companies

- More productive national economy
- A way to raise funds by the government
- Expand capital markets
- Attract foreign capital
- Loss of jobs, unemployment, workers’ rights unprotected
- Important industries get out of gov. control
- The interests of the public are not always protected.

to diversify = to extend the business’s activities into new fields.

to featherbed an industry = If a government featherbeds an industry, it gives it a lot of help, such as

lower taxes, especially so that jobs will not be lost.

denationalization = privatization

outsourcing – a type of privatization

1. What is privatization?

Privatization means relying less on government to meet people's need for goods and services, and
more on private institutions such as the marketplace, the family and voluntary organizations.

2. Is this a new idea?

Not exactly. Governments have been privatizing their activities in one form or another for centuries.
Back in 1492, Queen Isabella and King Ferdinand of Spain hired a private contractor to seek an
alternative route to India - though nobody called it privatization.

3. How is denationalization accomplished?

It depends on the individual country and company. Former members of the Soviet Bloc, in order to
leap from socialism as quickly as possible, typically have simply given away big chunks of state
enterprises to citizens, in what is known as “mass privatization“. A common technique is to issue
vouchers to the general public that can be exchanged directly for shares in a privatizing company.
Often, the citizens elect to sell their shares to investment companies, which then exercise great
control over the company. In other cases, the state turns over ownership directly to the workers and
managers of a factory or store. In capitalist countries, privatizations tend to occur either through
auctions or broad public stock offerings. Some countries, in a twist on the mass privatization
concept, have also endeavored to put stock in the hands not only of wealthy investors, but also of
lower-income people. Chile came up with an unusual, and highly praised, plan to allow workers to
convert their vested pension interest into shares of privatized companies.

4. Why privatize?

Government planners try to achieve a number of goals through privatization, some of them
contradictory. An oft-stated aim is to wring more efficiency out of the enterprises being privatized,
and thus to make the economy in general more productive. Governments also use privatizations to
raise capital. Unfortunately, since buyers are willing to pay more for a monopoly, sometimes the
goal of raising money gets in the way of making a company more efficient. Another aim of
privatizing, particularly in developing nations, is to invigorate and expand local capital markets and
to attract foreign capital.

5. Does it work?

Most available evidence shows that privatization increases a company's efficiency. The World Bank’s
International Finance Corp. affiliate reports that 67% of the companies it has helped privatize now
report “good“ profitability, up from 29% when they were still state-owned.

6. What’s the downside?

Initially, privatization can lead to widespread layoffs of workers, as the new owners clean house to
increase profits. However, proponents argue that an effective privatization program can provide
more jobs over the long term because of its positive impact on the overall economy.
 Arguments for and against privatization
FOR
1. “Industries will become more EFFICIENT if
they are subjected to the «disciplines of the
market», that is the fear of being taken over or
of bankruptcy.“
2. “Private firms will be able to DIVERSITY into
new areas of business and take up new
business opportunities, whereas in the past
they were limited in scope by the Acts of
Parliament that established them.“
3. “The managers of the businesses will be free
from the INTERVENTION of government
ministers.“
4. “If there is competition there will be
alternative suppliers so trade UNION power
within the old state owned industries will be
reduced. “
5. “Selling shares in essential industries expands
the number of people in the country who
REVENUE shares and who, therefore, have a
greater interest in the prosperity of these
concerns.“
State owned enterprises
Issue vouchers
Broad public stock offering
Increase efficiency
Protect workers’ interests
Expand local capital markets
Lay off workers
Make the economy more productive
AGAINST
1. “When industries become more efficient,
they often do so by closing down a plant and
LAYING off workers.“
2. “In pursuit of PROFIT private firms may
engage in activities that are not necessarily in
the public interest instead of concentrating on
those services they were set up to provide. “
3. “Once in the private sector, businesses will
be more interested in profit than in PROVIDING
services for broader economic and social
reasons, which can be guaranteed by state
control.“
4. “If trade unions are weakened by
privatization, they may not be able to PROTECT
workers' interests in the event of new working
practices being adopted. “
5. “State OWNED industries already belong to
all the people in the country who, therefore,
already have an interest in the prosperity of
these concerns and in the services they
provide.“
6. “State owned enterprises can only be sold
once. FINANCING government spending in this
way is like ‘selling the family silver to pay the
butcher's bill.’ “ (Lord Stockton).
Poduzeća u državnom vlasništvu
Izdavati bonove
Širok raspon ponude javnih dionica
Povećati učinkovitost
Zaštititi interese radnika
Proširiti lokalna tržišta kapitala
Otpustiti radnike
Poboljšati produktivnost ekonomije
 Mass privatization Masovna privatizacija

Sell shares Prodavanje dionica

Increase profitability Poboljšati profitabilnost

Raise capital or revenue Povećati kapital ili prihod

Attract foreign capital Privući inozemni kapital

Diversify Izmijeniti

Marketplace Tržište

Exploited Eksploatirati, iskorištavati

Wages Plaće

Interference Interferencija

Incomes Prihodi

1. What is privatization?
- Relying less on government to meet people’s needs for goods and services, and more on
private institutions such as the marketplace, the family and voluntary organizations.

2. Why do governments privatize?

- To bring more efficiency out of the enterprises being privatized to make the economy in
general more productive.
- To raise capital.
- To invigorate and expand local capital markets and to attract foreign capital.

3. What are different ways in which privatization has been done around the world?
- Issuing vouchers to the general public that can be exchanged directly for shares in a
privatizing company.
- Selling shares to investment companies.
- Through auctions or broad public stock offerings.
- Putting stocks in the hands of lower-income people.
- Allowing workers to convert their vested pension interest into shares of privatized
companies.

Public sector: everything that is owned by the government for the benefit of all citizens.

Private sector: everything that is owned by private investors for the benefit of the owners.