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Spain, Struggling With Weak Economy, Raises Taxes, Attacks Business

Spain's Crackdown on Black Economy Aims to Trim EU's Highest Jobless Rate . . . Spain unveiled a crackdown on underground employment as the government seeks to shrink one of the region's largest shadow economies, bolster tax revenue and reduce the Europe Union's highest jobless rate. The plan increases fines for companies hiring workers without registering them with authorities and for people working at the same time as claiming jobless benefits, Labor Minister Valeriano Gomez said. – Bloomberg

Dominant Social Theme: Anything that the government does not regulate is going to have a bad effect on economic recovery. Only by bringing everything under control of the government – and taxing it – will economic recovery occur. 

Free-Market Analysis: We can see how the socialist government of Spain continues the fine recovery of that once great country. Greece's socialist government is using satellite technology to count untaxed swimming pools. The socialist government of Spain intends to place the large thumb of officialdom on those businesses that have not yet felt its stern touch.

These austerity measures go to the heart of the argument about what exactly is going on in Europe. We have long pointed out that austerity from our point of view is much more about controlling society than making it solvent. The entire EU crisis has likely been manufactured in fact, with the elites expecting that the inevitable downturn shall develop unbrookable pressures for a further and more perfect union.

In fact, it hasn't exactly worked out that way. We would argue that it is the truth-telling power of the Internet in combination with a worse-than-expected financial downturn that is working to create a noxious brew of frustration and disaffection with the EU model itself. Couple this with the power elite's inability to link the downturn to bankers and banking (excusing government and central banks) and the hoped-for greater union has not materialized, at least not in the court of public opinion.

Nonetheless, the Eurocrats pursue power centralization with the desperation of the addicted. They cannot think of anything else but ratcheting up EU "coordination" of member economies while further injuring the already bleeding and prostrate middle classes that were promised euro-prosperity but have instead received the blunt blows of IMF austerity.

It is not to be expressed this way, of course. The Bloomberg article, excerpted above, is a good example of the spin that is being put on these "austerity" measures. The dominant social theme is that such austerity is the only possible choice – for surely leaving the EU and devaluating the currency aggressively is not to be considered an option. Instead the Southern PIGS, laboring under the enthusiastic urgings of the powers-that-be are working hard toward bringing these economies more fully under the authoritarian auspices of the respective governments.

The underground economy of Spain contains about one quarter of the country's gross domestic product, Bloomberg informs us (how would they know?), and this is an increasingly intolerable state of affairs to Spain's union of tax inspectors. Thus, the Spanish government has thus turned its tender attentions to extracting maximum revenue from those businesses "not doing their share."

The government is doing all this, according to Bloomberg, "to shield the economy from the sovereign-debt crisis." Indeed, the government is trying to "raise revenue to slash the euro region's third-largest budget deficit while cutting an official unemployment rate of 21 percent."

Are we missing something? How does raising taxes cut the employment rate? This doesn't seem to be an issue, however, that Spanish officials (or Bloomberg) intend to address, preferring to focus on the nefarious statistics that rank Spain right up there with Greece in terms of maintaining a "black economy." We understand. Only businesses taxed heavily are considered white, as they have been sucked dry.

"We're at the top of the European rankings in terms of the black economy, just behind Greece and neck-in-neck with Italy," Bloomberg reports Jose Maria Mollinedo, secretary general of tax inspectors union Gestha, as saying in a telephone interview. Gestha believes undeclared earnings to be 82 billion euros a year and if Spain's bureaucrats can only get their hands on ten percent of that sum, they would waste, er ... raise 13 billion euros in social-security contributions.

It is true that Spanish unemployment figures are astonishingly dismal – some 21.3 percent in the first quarter of 2011, according to the Spanish National Statistics Institute. Perhaps this is why Spanish officials so badly want to lay claim to some four million undeclared, "black market" jobs. These jobs are coupled with another statistic, which apparently horrifies Eurocrats. Spain, Bloomberg informs us, is home to 18 percent of the euro region's 500-euro bills, "which are habitually used for unrecorded cash transactions." We'll see how long these bills last. No doubt the EU will adopt the US's point of view and print bills no larger than "100."

In the meantime, Spain has a plan. As the Spanish economy is foundering and Spain's declared businesses are struggling, the Spanish socialists have decided to increase the minimum fine for companies hiring workers that are not registered. The fine therefore rises from 3,126 euros to a maximum of 10,000 euros. Spanish officials are planning other monetary punishments as well and will step up inspections of businesses to ensure the dreaded black market economy is minimized.

There are some reasonable voices that Bloomberg quotes. "The underground economy is a survival system both for workers and companies," according Jose Manuel Saiz, a professor at Nebrija business school and contributing author of "Ethics and Legality in Business," which address the underground economy. Saiz warns that Spain's plan to whiten the black economy may "strangle small companies that are just surviving."

Others, unfortunately, have just the opposite perspective. Javier Diaz-Gimenez, a professor at IESE business school in Madrid and former government adviser is quoted by Bloomberg as complaining the program does not go far enough. "If you're serious about the underground economy you need a big plan that doesn't just include the labor market, but a comprehensive approach to the black market," he said in a telephone interview. "The whole thing is patchy, half-baked."

The Bloomberg article concludes by informing us that "the government has been cracking down on tax fraud since 2005, tracking payments made with 500-euro notes, tightening control on bank transactions and investigating fraudulent ownership structures in companies." The "campaign against tax fraud" generated about 10 billion euros last year, according to the Finance Ministry. Presumably Spain's government, which has basically bankrupted the country, handled the windfall responsibly.

The failed IMF formula is being applied to the PIGS. The idea is to chop public spending, sell off public assets, assail "corruption" and raise taxes. Any normal observer would likely conclude that this is a prescription for a soft totalitarianism. Making the private sector "more transparent" to government is a euphemism for bringing the private sector under control of government ministries. Selling off public properties to favored corporations merely increases the destructive mercantilism that got these economies into trouble in the first place. Raising taxes in the teeth of an inflationary depression is guaranteed to make a horrible situation worse.

Conclusion: There are many who will maintain that "austerity" is the right medicine for these profligate countries. We believe such regimes have nothing to do with "recovery" and everything to do with further squashing free markets, suppressing middle classes and readying Europe for the Holy Grail of the new world order. It is all about control, not recovery. All about ensuring that these economies remain in a permanent state of capital deprivation and debt slavery. As with so many things these days, reality contradicts the rhetoric.

SOURCE: DAILY BELL

© Copyright 2008 - 2011 All Rights Reserved. The Daily Bell is an informative compendium of independent economic views and analysis, which is published by The Foundation for the Advancement of Free-Market Thinking (FAFMT).

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