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Thursday, January 30, 2014

Spain's black economy booming as GDP continues slow growth

Report finds shadow economy has expanded to 24.6% of GDP, as official figures show fourth-quarter economic growth at 0.3%

While the rest of Spain's economy is either stagnant or in decline, a new report shows that the so-called submerged economy is booming and accounted for 24.6% of GDP in 2012, 6.8% higher than in 2008.

The report by Spain's inland revenue department titled The Cost of the Submerged Economy: Increased Fraud During the Crisis claims that the black economy is now worth €253bn (£208bn) – €60bn more than in 2008.

Meanwhile, figures released on Thursday show that Spain's GDP rose by 0.3% in the last quarter of 2013, up from 0.1% in the third quarter. This represents the biggest rise in Spanish GDP since the beginning of 2008.

The inland revenue report says the submerged economy has grown fastest in those areas most affected by unemployment and the burst housing bubble, such as Andalusia, the Canaries, Extremadura and Castilla-La Mancha. The figure for Extremadura, where unemployment stands above 30%, is 31.1%.

The housing boom "created a huge reserve of black money, especially in coastal areas", demonstrated by the "massive use" of €500 notes, which the report claims account for 70% of all the cash in circulation.

Other factors are the punitive social security regime imposed on the self-employed and the lengthy and labyrinthine process of establishing a legal enterprise, both of which discourage entrepreneurship and boost the cash-in-hand economy.

The report comments on the "serious moral problem when it comes to paying taxes", a situation that has put Spain's black economy high above Germany (13.1%), France (10.8%) and the UK (10.1%), although the rate in Italy, Portugal and Greece is closer to Spain's.

Shadow economic activity in Greece is equivalent to almost a quarter of national output, a study by the London-based Institute of Economic Affairs found. The research found that Greece's shadow economy was equivalent to 24% of GDP last year, which was one of the highest rates in Europe but lower than a decade earlier when it surpassed 28%.

The authors of the Spanish report, carried out for the tax department by the Universitat Rovira i Virgili, criticise the government for turning a blind eye to fraud. They also say it is only thanks to the black economy, along with family support and charity, that there has not been widespread social unrest. Although unemployment stands at around 26%, it is an open secret that this figure disguises the large numbers working in the submerged economy.

In spite of the high levels of fraud, there is only one Spanish tax inspector for every 1,928 taxpayers, compared with 860 in France and 729 in Germany.

Global economyEconomicsSpainEuropeStephen Burgentheguardian.com © 2014 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds


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