Wednesday, May 22, 2013

Tax Denial And Spanish Mistrust

The European Commission estimates that tax evasion in the European Union amounts to 864 billion euros. That's quite a lot of money. I'm unsure if this is annually, though if it is, then it is even more than simply quite a lot of money. To whatever period of time it refers, a conclusion that is drawn is that it isn't only the banana-republic Club Med countries that are awash with tax fraud and black money, so also are those countries which protest that they play by the rules and which have been at the heart of the European project pretty much from the days of iron and steel. Take Belgium, for example. Its percentage of hidden economy is said to be equivalent to 21.9% of the whole economy and amounts to 33.6 billion euros; Spain's is only fractionally higher, at 22.5%, though the amount in real terms is significantly greater - 72.7 billion.

This massive amount of tax evasion has only comparatively little to do with ordinary taxpayers (or non-taxpayers). It is evasion that is made primarily by large companies, the multinationals to which fiscal blind eyes have been turned in return for the benefits they bring in terms of employment and general economic welfare. They do bring employment, but the employees are hit for tax, while they as employers siphon their riches away in tax havens or through complex organisational structures. It is the large companies, as well as certain wealthy individuals, who are the haves of the tax system. They have all the benefits they can find, while the have-nots are everyone else, the hoi polloi who carry the tax burden. Or attempt not to carry the burden.

In Spain, the generally held view is that everyone evades tax or tries to avoid it. There is a distinction between evade and avoid. The former is considered illegal, the latter is considered to be creative tax accounting. Whichever verb or explanation one prefers, the view persists nevertheless; the Spanish are a nation of tax deniers and this denial is a national pastime that is rivalled only by football.

Despite having spent some years in Mallorca and having acquired a moderate feel for local culture, I remain gobsmacked at the endemic nature of tax denial. But when one looks around and sees the level of evasion, the level of corruption and the level therefore of fraud which is perpetrated by companies, certain prominent businesspeople and also politicians, then is it any wonder?

It was recently suggested that, although the submerged economy is as great as it is in Spain (and this submergence clearly does involve a very much wider population than tax-evading companies and corrupt politicians), if it weren't for this black economy, there would by now have been riots on the streets. It is an alarming notion. If the country were to operate properly in tax terms, it wouldn't get its economy in order, it would descend into anarchy.

I know full well how many companies operate, especially those which are larger than just the "mom-and-pop" concerns. The government knows full. Everyone knows full well. Certain tax burdens - social security payments most obviously, as they are ludicrously burdensome - bring with them evasion. Which means part black.

While other countries, even apparently less corrupt ones like Belgium, have such high levels of evasion, in Spain, the tax denial that is widespread throughout the economy is predicated, or so it seems to me, on a societal mistrust. Institutions, be they government in their different arms or the law, are set against the general public. Law-breaking is institutionalised insofar as it forms a key element of public administration's financial planning. Town halls, as an example, make a thing of revenues they can expect to derive from fines.

Such an expectation, though, is indicative of this institutionalised law-breaking. It may be a product of history, but it breeds what you have, the equally institutionalised mistrust between citizens and agents of the state. But mistrust can go only so far. Having created an atmosphere of extreme them and us, Spanish officialdom knows that it could tip the balance were it to reinforce this mistrust, e.g. by doing all within its power to eradicate the submerged economy; the suggestion that the black economy is preventing civil unrest may be right.

Tax-evading companies and high-profile individuals are one thing, the man in the street is quite another. The Spanish people haven't - yet - risen up against austerity and stormed the Bastille of corrupt business, government and the über-wealthy, because of the complicit nature of the tax-denial game. But it is no way to organise a society. Civic duty comes in different forms, and one of them is paying dues. This civic duty is not returned in full, however, because the masters of the citizenship have no trust in their citizens. And the feeling is entirely mutual. 

Any comments to please.

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