Nikos Filis is the minister of education. He is famous for responding to suggestions that VAT ought to be increased for pasta by asking ‘who eats pasta anyway?’
In my previous post I discussed the insanity of having varied rates of tax for similar products and services and complicate this with a series of exemptions based on geography. The ‘best government of all time’ has built on this ‘success’ by adding another layer of tax increases in its usual unorthodox way, this time on education.
Before the September election, the ‘First Time Left’ government of Mr Tsipras announced the inclusion of education services in the VAT regime with a charge of 23%. VAT, on education, at 23%, think about it for a second.
What counts as private education in Greece? Due to the deficiencies of the public sector everyone, and I mean EVERYONE has to subsidise their kids education by paying for private add-ons. People pay for private tutors to help with math and grammar, pay for private schools for English and French, pay for tutors and/or after school classes to prepare for the university entrance exam. You have to, if you do not, your kid will not know any foreign languages and will be accepted to study at the fish breeding academy in Igoumenitsa. Those with money also pay for piano lessons and ballet.
Parents with slightly higher incomes, or unlucky to be far from an operational public school have to pay for a private school so they avoid all the add-ons. People who do not live next to the grandparents have to pay for a lot of after school activities to allow them to finish work before picking up their kids.
This is the rich class which Mr Tsipras wanted to tax. This is the group of the population that does not vote for Syriza as a Minister said this week. Nice, considering that Tsipras himself sends his kids to a private school. Nice also considering that once a party is elected in power it usually pretends to represent the whole country, not just its voters.
Lets break this down for clarity. If you are playing 10 Euros per hour for your kid to study English in a Greek private establishment for say 4 hours a week (40 Euros) for 35 weeks in the year ( 1400 Euro). This is an additional 322 Euros in the year. In these conditions, this is not easy to bear. The ‘private establishment’ is usually a tiny ‘school’ run by a couple of people in a flat, with classes of 10-15 kids. Hardly capitalist excess.
This proposed increase was not mandated by the evil Troika, it was a gimmick by Tsipras right before the election to show how tough he will be on the ‘rich’. After the uproared that ensued, he promised to abolish this measure (that he brought himself).
The Greeks, impressed as they were by Tsipras honesty they granted him the government of ‘Defteri Fora Aristera’. Here is the result. VAT is being introduced in education at 23% initially, with the hope that countervailing measures will be found to allow the introduction of a multi-layered rate system.
In what is being lauded by the government as a great success (to come), VAT will be imposed on education services, as follows:
0% for kindergartens and nurseries
6% for foreign language schools, ‘frontistirio’ (tuition centers), dancing schools, music schools etc and vocational schools (IEK)
13% for private schools of primary and secondary education.
If the government ‘achieves’ this, guess what will happen next. Education providers will either mis-report their status to benefit from a lower rate, or will re-classify, or will keep receiving money under the table (as usually happened), or will go out of business as parents who cannot afford the higher rates pull their kids out.
Another win against the rich, another win for tax evasion and muddle. As Mr Filis said, why are we discussing about these peanuts?
For comparison see below for the education VAT regime in the UK.
No VAT for schools, higher or further education where tuition is being provided for a charge. Any ‘closely related’ goods or services provided are also exempt.
No VAT for private tuition which is provided by a sole proprietor or partner.
No VAT for tuition in English as a foreign language (EFL) which is supplied by a recognised commercial provider.
No VAT for vocational training which is provided for a charge.
Good luck to the next generation of Greek workers.