© Reuters. A waitress pours beer in a restaurant in Playa del Ingles, Maspalomas on the island of Gran Canaria, Spain, May 3, 2022. REUTERS / Borja Suarez
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By Belén Carreño and Gavin Jones
MADRID/ROME (Reuters) – For decades, an envelope filled with cash – or “dullness” – has been the way hundreds of thousands of Spaniards work without a legal contract in the tourism sector. Calendar, agriculture or construction collect their wages.
However, COVID-19 may end up paying the price for what the economic data and worker experience are saying are “dull” – prompting a six-year crackdown in Spain on the economy. shadow economy and provided a welcome boost to the country’s public finances.
Spain’s economy has been hardest hit in the eurozone by the pandemic, shrinking 11% in 2020 amid tough shutdowns. Two years later, it still hasn’t returned to pre-virus levels.
But something unexpected has also happened: the total amount of tax revenue and the number of people in formal employment is actually higher now than it was at the time of COVID-19.
The reason, according to labor experts, unionists, employers and workers interviewed by Reuters, is an unforeseen side effect of the pandemic that has driven many Spaniards out of the country. shadow economy and became routine.
The main reason is the declining use of cash due to hygiene measures during the pandemic, along with increased demand for contracts by workers, who find that following the sights also means with missing out on high payouts during the lockdown.
While some of those factors apply to other countries, the structure of Spain’s economy and other local factors mean the impact is especially evident there.
“In the food and beverage industry, before and after the pandemic,” said Gonzalo Fuentes, food service representative at CCOO, Spain’s largest trade union organization. at CCOO, Spain’s largest union, accounting for 12.4% of Spain’s official economy in 2019.
“Workers realize that underground activity doesn’t pay off, and even though they don’t pay taxes or social fees, they still earn more.”
CASH TO OLIVE GROVE
Although measuring shadow economies by their very nature is difficult, estimates suggest that even before the pandemic Spain’s efforts to limit potential activity had caused it to suffer. withdrew from its eurozone peers Italy, Greece and Cyprus where shadow economic activity remained substantial.
Before the pandemic, Spanish authorities increased labor inspections in the tourism and agricultural sectors, even using algorithms to detect tax fraud.
“Employers have changed. Everyone is giving you a contract now,” said a 55-year-old man who will only be identified as “AR” because he has worked undeclared. for 30 years as a waiter to supplement his main income in the public sector.
“I remember being at a wedding just before the pandemic hit, and before the service started, the inspectors came and started identifying all the people who were serving. A group of them ran. through the olive groves,” he told Reuters.
At the same time as labor practices are changing, COVID-19 highlights the lack of protection for informal workers and brings about a shift in consumer behavior as sanitation practices encourage the shift from cash to credit card payments, a key factor in reducing tax fraud.
The director of the Spanish Tax Service, Jesus Gascon, told lawmakers in a parliamentary committee: “This is very important for tax control because they are transactions whose source can be traced. origin.
Furthermore, that change comes with a July 2021 ban on payments of more than 1,000 euros ($1,054.00) in cash as part of government measures to crack down on the shadow economy. .
Vicente Jimenez, head of agriculture at the CCOO association, said: “Payment by wire transfer has completely changed the whole mindset in the agricultural industry. “This is a one-way journey with no return. A journey into the 21st century.”
Combined, these two trends have had significant impacts.
The number of workers contributing to social security exceeded 20 million in April 2022 for the first time, compared with a slightly lower level of 19 million before the pandemic.
Tax revenue totals 275 billion euros in 2021, compared with 248 billion in the previous year and 266 billion for 2019 before the virus hit.
The extra boost to the state treasury is one factor that will allow Spain to cut its budget deficit in 2021 to 6.9% of GDP, from 11% the previous year, beating expectations. government.
“The shadow economy, one of the weak points of the Spanish tax system, has finally been made public,” Economy Minister Nadia Calviño said at an April 29 press conference presenting the development. economic prospects of Spain.
Italy IN THE NIGHT
Data collected by economist Friedrich Schneider of Linz University, an expert on shadow economies published by the International Monetary Fund in this area, shows that Spain is moving away from the competition. main in the Mediterranean is Italy.
By his calculations pointed out by Reuters, Spain’s shadow economy briefly grew in 2020 to 17.39% of total economic activity before seeing a sharp decline in 2021 and will reach 15.8% of activity this year. According to Friedrich, this is much lower than Italy, Greece or Cyprus, where lurking activity accounts for at least 20% of total economic activity, and well below the European average he forecasts of 17.29 % in this year.
Italy’s efforts to tackle its latent economy have stalled, according to Schneider data, at around 20% of the Italian economy as of 2020.
Schneider emphasized that the 2022 data is still a forecast, and commented that the size of a country’s shadow economy is also influenced by local factors.
In federalized countries like Spain, where many taxes are administered locally, there is a tendency to pay larger taxes – something that is reflected in the low figures for the shadow economy, says Schneider. in Austria or Germany.
Another factor that determines the size of an informal economy is what activities are considered legal: Schneider notes that in the Netherlands, for example, the fact that prostitution or light drug use is Partially legal or tolerated means that such activities can be included in the official, taxable economy.
Like Spain, Italy also benefits from the switch from cash to bank cards.
Italy’s own data shows it made steady progress in stopping tax evaders between 2014 and 2019, the most recent data available. Further reducing tax evasion is one of the goals of Italy’s Post-Pandemic Recovery Plan that has been agreed with the European Commission by the European Commission in return for more than 200 billion euros in EU funds. Official data shows that around 18.5% of taxes in Italy were evaded in 2019.
Alessandro Santoro, an economics professor who advises the Italian government, said: “We’ve done a lot to limit evasion but there’s still a lot of work to be done.” .
Back in Spain, one area of the shadow economy is still deeply rooted: the employment of undocumented workers whose livelihoods are often too precarious, challenging employers unethical.
JC, 27, a Colombian, arrived in Spain three years ago and has transitioned from a bar job to a factory job – but never secured the contract he needed to become a legal resident. France.
“(My employer) told me not this year… He saves a lot of money by keeping me infrequent. Maybe next year.”
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