Unemployment has contributed to a rise in the level of the black economy and tax fraud. :: SUR
The underground economy is booming thanks to the recession and unemployment, according to tax inspectors
Spain’s black market economy has increased considerably since the economic crash, according to a new report.
A recently published study by the Finance Ministry’s union of tax inspectors, GESTHA, finds that untaxed transactions in 2012 totalled 253 billion euros, or 24.6 per cent of the country’s GDP. This is 60 billion euros, or 6.8 per cent more, than in 2008.
The report, entitled ‘The Underground Economy and the Increase in Fraud During the Crisis’ concludes that the so-called ‘cash economy’ grew annually on average by 15 billion euros between the start of the crisis in 2008 and the end of 2012, the cut-off point for the research.
“Spain’s underground economy has grown particularly in those regions with high levels of unemployment and which were most affected by the property bubble bursting, such as Andalucía, the Canaries, Extremadura, and Castilla-La Mancha,” says the study co-authored by Jordi Sardà of the University Rovira I Virgili in Tarragona, Cataluña.
Madrid, Barcelona, Tarragona, Lleida, and La Rioja are said to have “strikingly low” black market activity. This is likely, the report finds, because there is a large number of national and multinational firms in these areas. However, it does also highlight that such firms are more able to use sophisticated tax planning strategies to mitigate their tax liabilities.
The double-dip recession is the primary cause for the rise in transactions carried out under-the-table as this has fuelled “unemployment to 26 per cent which has [in turn] contributed to a rise in the level of the black economy and fraud.”
Another significant driver of this trend was the collapse of the real estate market in 2008. This, says GESTHA, “boosted the black market as many transactions were carried out in cash using 500 euro notes” - and up to 70 per cent of business done behind the taxman’s back is done using this currency denomination.
With Spain’s black market valued at such a staggeringly high level - a quarter of gross domestic product - many observers might wonder why the country’s political leaders and other authorities are seemingly doing little to combat the underground economy.
To address this point, the report states: “A doubt arises as to how much governments want to interfere in the black economy, since millions of people depend on it and fighting it would create great social instability.”
This conclusion has been broadly echoed by some contacted this week by SUR in English who work predominantly within the cash economy.
A British plumber, resident in Marbella and who for obvious reasons does not want his name published, says: “Like most people, I would love to be earning enough to pay all the taxes I should be. But the fact is that I’m not; I’m only just about getting by. I wouldn’t be able to survive financially if I had the extra burden of tax too.
“My customers understand this. And more than ‘understand’, they’re happy to pay in cash as it saves them money too. It goes both ways and seems to work well for everyone.”
Similarly, a Mijas business owner affirms: “The taxes for the self-employed and employers are ridiculously high, compared with other countries such as the UK. And they [the government] still keep raising them - so it becomes very expensive to hire anyone. No wonder employers don’t want to take on more people or they pay part of people’s wages in cash to avoid tax.
He adds: “I don’t feel what I’m doing is that wrong, to be honest. Many rich people and big businesses find ways of reducing their taxes by using offshore havens and the like, so why shouldn’t we ordinary folk cut our tax costs where we can?”