Mar 022011

In the last post about “Why Spain Has A Big Problem” I talked about the disincentives for anyone wanting to start up a business in Spain. Today I will tell you about the results of that.

As businesses in Spain have such heavy upfront costs many sole traders will start in the Black economy. Their first months will be cash in hand until they are earning enough for two things.

1) To be able to pay the costs involved in being an autonomo whilst still taking money home at the end of the month after paying their taxes too

2) To be able to understand how to bill in Spain when virtually everyone asks whether they can get away without paying VAT.

Plumbers, electricians, teachers, short courses etc… virtually anything that can be done in a one on one transaction will involve that inevitable question. Is it possible to reduce the bill. This usually means can I pay without VAT?

Black Economy in Spain

Black Economy in Spain

For the Spanish economy the effect is twofold. Firstly you should never believe official government figures about the economy in terms of size or numbers of employed or unemployed. One of the main effects of the crisis in Spain is that the unemployment figures have been rising hugely. One of the main areas that is rising is in those who were self employed. Now there is no doubt that people are losing jobs as they cannot earn enough to make their work pay for them but there is no real incentive to declare yourself unemployed here as unemployment pay for previously self employed workers was nil until the government put in an emergency 420 euros per month payment in place last year.

Therefore it is clear that people are signing off the self employed register and signing onto the unemployed register but they are continuing to do the work they did previously. However the government now doesn’t get their social security payment and VAT is not been collected either meaning that central government income goes down.

The proof. Well anecdotally there is a small town in Andalucia where everyone is officially unemployed now apparently yet spending in the local area has remained constant from 2008 to now. ie money is still there but it is just not as visible as it used to be.

The knock on effects of this lack of state income are huge as they cannot afford to pay for social programmes that might benefit from greater levels of support and recently the government has been forced to suspend the support of 420 Euros for a year to newly unemployed people.

C’est la vie of course.

In the next post I will be putting together a list of things that could be done to help start up businesses that are not currently done and then in a guest post from Rebuzzna they will be telling us how you can use “Incubadoras” to get support for your newly formed business in Spain.

First Article In The Series – Why Spain Has A Big Problem

  4 Responses to “The Growth of the Black Economy in Spain”

  1. Good Post Graham, pro-active encouragement of entrepreneurs is really needed. Just look if a husband and wife are working in two different businesses with two lots of autonomo payments = a total of around 600 Euros a month. A great dissuader from not going on the ‘black’…

  2. So if the four million people working in the black economy according to a new report today had their social security payment made for them by the government would the government get back more through VAT and other taxes?

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