Guest post by Anna Nicholas
Whenever I mention Spain’s escalating unemployment figures to Majorcan friends they shrug philosophically often with a wry smile and helpfully assure me that the 5.7 million quoted in the media is wide of the mark. After all, they say, it’s just an official estimate. What about all those unaccounted for, the hardworking souls supporting the black economy who manage to keep well below the tax radar?
Of course they’re right. Currently it’s estimated that the underground economy in Spain accounts for more than 22 per cent of the country’s gross domestic product (GDP). Some economists believe it to be as high as 25 per cent and in the current crisis that figure will no doubt continue to rise. There are many unemployed who in desperate straits are willing to work at a lesser rate for cash-in-hand earnings. Most will not pay tax and many will claim social assistance and unemployment benefit. Others will be supported by the family network, and often work for financial handouts within the family stable. The threat of being caught won’t easily spook them because so many are circumventing the system already and the majority of Spaniards would applaud rather than castigate them for their actions.
In a country where political corruption is rife, it’s hardly surprising that the electorate has a natural suspicion and distrust of central authority so the average Spaniard will try to get away with paying as little as possible in taxation. It’s not so much about cheating the Spanish Treasury, more about demonstrating that they’re fiscally savvy and are nobody’s dupe.
The recent increase in VAT from 18 to 21 per cent has added fuel to the fire. It is estimated that €18 billion per year is lost due to VAT fraud but hiking it up is only making matters worse. In fact as a consequence it is now completely normal to be offered local services without VAT being added. Most customers will keep shtum and not demand receipts in order to make a substantial saving and the vendor won’t declare the sale. The government has also passed a bill forbidding cash payments for more than €2,500 but such edicts only push transactions further underground.
It is customary when buying a house in Spain to pay part of the sum in dinero negro,black money, because everyone’s a winner, the vendor and purchaser. And if one looks at the housing rentals market, particularly holiday rentals, tax dodging is the name of the game. Part of the problem must be laid at the Spanish government’s own door for inadequate and confused legislation. Few Spaniards let alone expats who own and let properties understand the process for obtaining permits and declaring income.
In an attempt to promote transparency among its electorate, Mariano Rajoy’s government has even introduced fiscal amnesty for offshore accounts with a rate of ten per cent taxation. To its embarrassment very few of the culprits have come forward. And why would they when remaining undetected by the treasury will ensure a quiet life and will not see them in effect robbed of ten per cent of their booty?
So what is the answer? I’m certainly no economist but perhaps reducing taxation and VAT might create greater transparency in Spain. Whatever the weather, even if the Spanish government does manage to claw back some of the ill gotten gains of its electorate it will never be enough to fill the country’s inexorable deficit pit.
A bail out from the EU might keep the hounds of hell at bay but ultimately the Spanish government has got to regain the faith and trust of its people. Until that happens, unemployment queues are going to remain high.
Article source: My Telegraph.