The State We Are In

THE STATE WE ARE IN David Officer and Yiouli Taki David Officer and Yiouli Taki Published in Cyprus 2013 by University of Nicosia Press University of Nicosia Press 46 Makedonitissas Avenue PO Box 24005 1700 Nicosia, Cyprus Copyright COPYRIGHT © Friedrich-Ebert-Stiftung and INDEX Research & Dialogue, 2013 All rights reserved. No part of this publication may be reproduced or transmitted by any means without the written consent of the copyright holder(s). Disclaimer The views expressed in this publication are not necessarily those of the Friedrich-Ebert-Stiftung or of INDEX Research & Dialogue. Cover design and page layout by Christopher Malapitan Printed and bound in Cyprus by R.P.M. Lithographica Ltd, Strovolos ISBN: 978-9963-711-19-2 Acknowledgements This book could not have been written without the help of great many people living and working in Cyprus. Family and friends have been unerringly generous in sharing their time with us, patiently answering our questions and freely sharing their views and insights. It is also important to acknowledge the many colleagues who labour away in the academy or devote their time to promoting the interests of diverse groups within civil society. Indeed, it has been the experience of reading endless reports produced by CSOs and others, many of which document in detail the wide and various failings of the state to deliver on its obligations, which helped prompt us to write this book. Without the small number of activists and researchers working in the fields of gender and ethnic discrimination, poverty reduction, conflict reduction and so on, the basis upon which the book’s main propositions are made would have been weakened. In particular we would like to thank colleagues at the University of Nicosia and INDEX: Research and Dialogue, as well as friends and associates we have worked alongside including those attached to the NGO Initiative for Legal Reform and the Cyprus Development Platform, amongst others. A large part of the background research made available here was developed as a consequence of participation in two research initiatives funded by the European Commission. Both the ‘Social Capital in Cyprus’ and ‘A Democratic Audit for Cyprus’ projects also provided the opportunity to collaborate with others located elsewhere on this island, pursuing common themes. In that context, common work undertaken with the Cyprus Policy Centre in the north was particularly productive. Those projects also involved the convening of workshops, focus groups, conferences and roundtable discussions the debate and deliberation which this engender only enhanced our confidence in the analysis presented here. A needs analysis of refugees and those with International Protection supported both by European Commission funded projects and UNHCR in Cyprus also sharpened our ideas about how the state discharges its duties towards those least able to defend themselves. Finally, we would like to thank Hubert Faustmann of the Friedrich Ebert Foundation for nurturing this book publishing project; Aileen O’Donoghue for turning dense text into readable English and Christopher Malapitan for designing the cover and managing the books production. It goes without saying that the views expressed here are the responsibility of the named authors and do not reflect the views of any organisation or individual mentioned here. CONTENTS Prologue 9 1 The Expanding State and the Segmenting Society 13 2 The State We Are In 25 3 Quality of Governance: According to the World Bank 37 4 Living by the Rules: The Making and Breaking of Trust 53 5 Perceptions of Corruption: What the Citizen Thinks 69 6 The Experience of Corruption: What the State Does About It 89 7 The Party Political Machine: Distributing the Spoils 107 Epilogue: The World of the Sicilian Taxi Driver 117 Bibliography 118 Prologue By the end of 2010 overdue taxes owed to the state were €603.48 million, excluding interest. However, the total amount due, including interest and charges, which had accumulated over years amounted to something like €1.027,87 million. The situation has worsened since then; collected tax revenues have declined and the total tax debt has risen. And the gap between what the state calculates it should reap and what it actually receives continues to widen. The annual auditor general’s reports make for depressing reading if you are a minister or civil servant who is charged with the task of delivering minimal forms of social support to the tens of thousands who find themselves unemployed or of propping up a public health system heaving under the strain of new referrals who had previously been able to afford private health care. Described in this way, money provided by taxation is commonly used by states to provide important public benefits to which could be included transportation networks, economic infrastructure, energy, water and waste management, public utilities, pensions systems and law and order institutions. Tax can be understood as a bargain struck between the citizen and the state in which consent to being taxed rests on the delivery of common goods and services which serves society as a whole rather than only one particular group or another. This does not preclude the targeting of particular goods and services at specific sections of the population with a taxation regime to serve the purpose of redistributing some of society’s collective wealth to the neediest. The imposition of this burden needs to secure people's general consent, based on the anticipation by them that they will get an appropriate return. Why is it so difficult to collect tax in Cyprus? So why does it appear so difficult to collect the revenues due in order to ensure that quality goods and services are delivered to the wider population? Again, the auditor general’s report is sober reading. She identifies how the state was, in many ways, not up to the task of gathering the revenue owed. The courts and the police service were identified as inefficient in recovering taxes owed, and an understaffed tax service only compounded these problems further. Turning attention from the state towards society at large reveals many opportunities to evade the payment of tax. It has been calculated that in 2012 the size of the underground economy in Cyprus, as a percentage of GDP, was 25.2%, a larger percentage than recorded for Greece (23.1%). In the same year it was reported by the labour ministry that 25% of the labour force was made up of undeclared workers. But perhaps the greater difficulty confronted was the willingness of many to engage in widespread tax evasion, declaring unrealistically low incomes or by not submitting tax statements at all. Across a wide range of different types of taxes, related to property, business or employment. Ever more creative ways to avoid paying were not only evident but treated as a normal and legitimate activity by a large number of people. In Cyprus it is easy to imagine a wide range of self-justificatory claims being made for not paying what is owed. Some might see that the tax burden does not fall equitably on every group as a range of professional groups have been reported time and time again as evading to a greater degree than others.. Others might identify endemic corruption within state institutions which dictate that the tax paid is distributed for someone else’s benefit to which you will have no access. 9 THE STATE WE ARE IN A common claim made is that the state is inefficient and ineffective, only serving the purpose of providing work for a privileged class of public sector workers who take home a generous cheque at the end of the month. Still others will identify poor quality services which do not appear commensurate with the taxes demanded resulting in a rationale that elevates tax evasion as a justifiable act of price adjustment in terms of what is actually received. The core argument of this book is that there might very well be evidence which underpins many of these rationalisations for tax evasion as a justified action. Perceptions of widespread corruption are considered and the extent to which public resources are captured by private interest is explored in some depth. Just how effective the state is in the delivery of a reasonable quality of governance is also given real consideration. But, there remains an important, if neglected aspect of the tax evasion problem which is also brought into focus in this book. If you cannot trust those you share society with to play by commonly accepted rules there is no apparent incentive for you to do so as well. The assumption that evasion is a common practice, deeply embedded within Cypriot society and pursued by your fellow citizen has a profound influence on the choices you make and the way in which you choose to behave. After all, so the line of logic goes, there is nothing I can do to change the rules by which the game is being played and there is no advantage in being the only straight player in a crocked game of poker. This book also dwells on the outcomes that arise out of the gap which opens up between the formal rules that any liberal democracy claims to adhere to and the informal rules which actually govern state practice. We also ask what is the likely outcome of public goods and services being widely perceived to be distributed on the basis of whom you know or the party to which you belong? What is likely to happen if meritocratic recruitment to a public service position is thought to be suspended or objective criteria through which a benefit or allowance is made accessible appear undermined? Put in more technical language, the evidence considered here raises questions about the outcomes which flow from the widely held view, reinforced by much experience, that procedural justice, fair outcomes and impartial consideration do not generally characterise the citizen’s engagement with the state.

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