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 andrew@thealcudiaguide.com please.

I'll Be Watching You

Watch out! I'm watching you. I'm watching you in a bar. I'll be coming but you won't know me. I'll be sitting there, watching. I am the eyes of the government, the tax office, the social security, employment. I'll be in your bar.

The tax office, along with the other departments, is stepping up its efforts. "An aggressive plan" against the black economy, the absence of papers or the papers not quite right. More inspections. Checking on those claiming dole, but receiving a wage. Checking on everything, including the importing of goods from Asia and elsewhere.

When the money's tight, the government does what it can to ensure its revenue stream. Quite reasonably so. But when money's tight, the propensity for rule-bending increases. It is the vicious circle of crisis.

The checks are not out of the ordinary. They happen all the time. Just that they're going to be increased. That "aggressive plan". Watching and waiting.

The watching happens in different ways. There's the watching on the internet. For some time, websites with accommodation to rent have been paid particular attention to, especially websites of British origin. The tourism ministry has netted some apartments in Calvia. The fines can be as high as 30,000 euros. The ministry's inspectors paid a visit to one apartment, all perfectly well turned out, cleaned, with the use of pool and garden. 4,500 euros to rent. Except it wasn't quite legal. Others offer even more, such as transfer to and from the airport. Who's doing the transferring?

This watching of websites and of accommodation intensified a couple of years ago. The checking of apartments and villas for quality, safety and tax was not new, just that the level of effort increased and the technology was made greater use of. You wondered whether it would have much effect. It would appear that it has. There is the vicious circle of renting, though. The hoops and obstacles of trying to be legit, only to come up against the impossible barriers. Not everyone wants to do it improperly. But not everyone can do it properly. So the watching continues and becomes more intense.

There's the watching on the roads. The director-general of Tráfico was in Palma not so long ago. More controls are planned. More promotion of the risks of speed and of being distracted, but more potential for revenue, you would have to imagine. Again, not unreasonably though. And then there is also the automated watching. The new radars. They're not watching. Not yet. More investment is needed to make them work.

They need to step up the controls, not just to stop speed, drink-driving and "distractions" (playing with mobiles, sat-navs etc.) but also to compensate for the loss of revenue during what was something of a work-to-rule by traffic police last summer. The number of fines fell by 15% along with a reduction in the number of vehicles that were stopped, albeit, however, that during the first half of last year as a whole the number of drivers caught for drink-driving went up by a staggering 114%.

Watching employees, watching the number of chairs on terraces, watching the needle on a music limiter, watching the PRs, watching the space occupied by sunbeds on a beach. Now watching the smokers. Maybe there are even detectives watching the detectives.

All this watching has its value. Calvia, when setting its budget for this year, placed an amount on what it anticipates coining in through fines. Maybe local authorities all do this, wherever they are. Maybe it is a part of "good" public financial management. I confess it had never occurred to me that local government or any other government income might actually take into account what comes in by way of fines.

Revenue from fines, you might think, would simply be the jam on the other revenue. The bonus. It would seem not. But by formalising the outcomes of all the watching, giving it a number in the accounts, it is as though it institutionalises wrong-doing. The expectation is to break the law. Human nature being what it is, then maybe this is a pragmatic approach. Yet it is a system which appears set up for social failure as it undermines the psychological contract of reciprocity between authority and citizen, the latter afforded the role of the unscrupulous, whoever the citizen might be.

And all the while, the citizen does his or her own watching. That of the politicians and others in positions of authority or in positions within businesses with close connections to these authority figures doing their own fiddling.

The whole world's watching. Each other. In Mallorca, at any rate.


Any comments to andrew@thealcudiaguide.com please.