Greek Primary Surpluses, VAT, and the Tale of Hodja’s Donkey

In the execution of Greece’s budget, there’s always a ‘truth’ hidden within the numbers. Recent announcements for 2024 and especially 2025 reveal a problematic reality despite the reasons being almost forgotten. The massive primary surpluses, relative to Greece’s economy and global context, have already been nearly achieved in the first quarter of 2025, while 2024’s targets have been exceeded unexpectedly. This occurs amid global economic uncertainty, stagnation, looming recession, significant fiscal deficits, and unprecedented trade wars. Are we living on another planet? Or are we being misled by the numbers? Clearly, we aren’t on another planet, and the figures from the General Accounting Office are accurate. So, what’s happening in this paradoxical place called Greece? To understand, let’s recall the story of ‘Hodja’s donkey.’ The data shows that both in 2024 and even more so in 2025, the primary surplus is consistently fed by tax revenues, particularly indirect taxes like VAT and excise duties. In just the first quarter, these revenues reached approximately €8 billion—nearly 4% of GDP! The scale is alarming when considering the 24% VAT rate applied to almost everything we buy daily. For every product or service costing €100, Greeks pay €124—a staggering tax burden unseen even in Europe’s most expensive economies, where wages are three to four times higher. Essentially, for every €1000 spent by a family, about a quarter goes directly to the primary surplus, in addition to other direct taxes and social security contributions. Tragically, when this surplus meets its annual target, it continues to grow instead of funding critical needs like education, healthcare, pensions, and salaries. Some might argue this is dictated by memorandums and inherited fiscal rules across the Eurozone. Not exactly… The truth is that the Eurozone introduced VAT to fund the European state mechanism and cover social expenses traditionally financed through income taxes. Gradually abandoning the post-war welfare model, it uses an unjust, non-progressive tax system (VAT) to finance social benefits rather than progressive income taxation. Greece, having suffered a 25% GDP loss due to three bailouts—comparable to Ukraine’s war-induced losses—faces an incomparably harsher VAT rate than Europe. Worse still, these revenues don’t address social needs, even when exceeding targets. Like Hodja’s donkey who stopped eating but eventually died, people prefer doing something else before reaching such extremes.