Monday, 7 January 2013

Evasive answer

The Spanish financial year runs, logically enough, from January to December, and from the end of December we have a month to make sure our records are in order before presenting our end-of-year accounts to the gestora. The gestora has an office in Huesca rather more civilised than that belonging to the Loughborough accountants for whom I temped for six weeks a dozen years ago, in which four or five trainee or junior accountants worked in one small room while the partners worked in spacious offices down the corridor. It was towards the end of the year and for Xmas almost every client presented the partners with a bottle of whisky as a token of appreciation. It's the sort of perk I don't remember receiving when I worked in the public sector.

Talking of accounting, false accounting is among the offences for which Rodrigo Rato is currently under investigation, which didn't stop Telefónica appointing him a consultant this last week. Which indicates either total confidence in his innocence on the part of Telefónica, or their disinterest in the truth or otherwise of the allegations and disrespect for the judicial process which is taking place.

Meanwhile, the bank which he headed is laying off thousand of employees and cutting the pay, gigantically, of those who remain. Few of the victims of this process are expecting to be offered new jobs with Telefónica. And while that is happening inside branches, outside them, the small savers who will not get their savings back are holding demonstrations.

We put a lot of effort into getting our accounts right, which is not true of every business in Spain that, like ours, makes a large proportion of its sales in cash without having to issue receipts. Knowing this, when we went to buy olive oil the other day, and paid in cash, I found myself wondering, as we left, about the tax declaration of the vendors, and then immediately wondering whether any of our customers have the same thought about us. It would be only natural.

According to research reported in the Financial Times in 2011, the black economy in Spain is about one-fifth the size of the official economy - about twice as high, if I follow the paper, as the figure in Germany. That's a difference, but it's not the difference between good and evil, between a healthy society and a sick one. There is more corruption, and more tax evasion, in Spain than in Germany or the UK, but Spain is not properly described as "corrupt". It is not an all-pervasive element in everyday life. We do not pay bribes to doctors for treatment, nor to traffic policement for non-existent offences, nor to public servants to have our documentation processed.

At the same time, it is a sizeable difference and an unhappy one from the point of view of Spain. Nor could it exist on the scale that it does if it were not tolerated unofficially, by the public, and officially, by the political and business classes: or if it were not something that had deep and long-lived roots in Spanish life. Political corruption in any country reflects something about the society in which it takes place. The UK, for instance, had an expenses scandal, where MPs of all parties were caught fiddling their expenses claims, "flipping" their first and second homes, claiming for things they should not - and this reflects a wider culture of fiddling among the public, where, for instance, insurance claims are fiddled, where VAT declarations are fiddled.

Not by everybody. Not even by most people, nor, I think, normally with the active collusion of others. The bottles of whisky were not a quid pro quo for turning a blind eye. But by enough people, with enough toleration from other people so that if you do it, you know other people won't blab. You can probably talk about it, not too openly, and other people won't blab.

That culture produces politicans who fiddle their parliamentary expenses. Not all of them. Not even most of them. But enough - trivial though it seems from here, when one is accustomed to the Partido Popular of Valencia or Galicia. Or the Balearics. Or everywhere else.

Spain has a higher level of political and business corruption than the UK - and a larger black economy, and each of these is a reflection of the other. But what to do? It is easy, and not entirely wrong, to condemn Spaniards for being complicit in the culture of tax evasion, just as it is easy, and not entirely wrong, to condemn Greeks for being complict in a culture of bankhanders.

But the worst possible time to do either is during a gigantic recession! How does one persuade people that they shouldn't be working cash-in-hand, if that is the only work they can get? If that is the only way they see, to save their house? How do you persuade people that they should always get a receipt, if not getting a receipt may mean saving VAT that is levied at an intolerably high level? A level that they can't afford to pay? In Greece:
Economics professor Theodore Pelagides says rampant tax evasion is a case in point. With VAT at 23%, thanks to policies mandated by Greece's creditors at the EU and International Monetary Fund, withholding of official receipts has assumed proportions that even by the standards of pre-crisis Greece have become chronic.

"People have been pushed to their limits. They have calculated in a very rational way that avoidance of such receipts is a necessity at a time when they have been hit by so many wage cuts and unexpected taxes," Pelagides said. "We should not be at all surprised by the report's findings."
Well obviously! The more poverty the make, the more cash-in-hand you generate. Doesn't everybody know this? Didn't the IMF?

Since this is a time for IMF mea culpas - an unheard of occurrence, so unheard of that one almost fears that it's a portent of apocalyptic times to come - one wonders whether they may also apologise for racking up VAT to the more-than-self-defeating point where nobody will pay it. (It's funny how there is a Laffer Curve, to be invoked against rich people's taxes, but no such concept seems to exist for taxes paid by ordinary people.) But 23%? Not so very far above the upper rate of IVA, the Spanish term for VAT.

This stands at 21%, raised to that level by a government which had promised not to increase it, the sort of thing that tends to upset electorates more than it does economics correspondents. (It is not the only rate. On the books that we sell, a much lower rate of 4% still obtains.) The more austerity impoverishes Spaniards, the fewer of them are going to ask for an invoice, a factura. Not when they can save themselves 21% without one. And every time that happens, the black economy is bigger, and the country is one step further from addressing a problem rather greater than anything that might be remedied by the imprescindible labour market reform.

Of course one could and should go further, and say that it will be harder still if the country splits apart. Impossible, if society disintegrates. And probably unrealistic in any event if the crisis continues, as it will, and if further austerity is insisted on - as it will be - from outside the country, from Brussels and London and Berlin. Of course there will be a movement, a struggle, to change this culture, to insist that taxes are properly paid and to shame the people and institutions that evade them. But that struggle will be carried out by the people who are against austerity, the people who are demonstratingly daily (and it is, practically, daily) against austerity. The people through whom, with whom, the ECB and IMF will work, are the political representatives of the major tax evaders, just as, in Greece, they have worked through New Democracy and PASOK.

If Christine Lagarde had really cared about Greek tax evasion, rather than about using tax evasion as a reason to speak contemtuously about Greeks, it would have been central to the troika's demands for Greek reform. It wasn't: it was just a list, spoken about no more by the IMF than by the government which made sure to lose it. the purpose it served was and is political - the attribution of blame.

When the rescate happens, expect lots of fuss to be made about Spanish tax evasion. Ask, as most commentators will not, where this fuss was when the boom was happening, or when Spain was invited to join the single currency. That would have been a good time for the fuss to be made. That would have been a good time to deal with tax evasion, when there were carrots to be waved, rather than only sticks.

But nobody wanted to, back then. Spaniards didn't, for sure. But neither did the people who will point their fingers at Spaniards and call them "cheat". They should point their fingers at the mirror. They should point them at themselves.

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