Pandemic pushes shadows out the Spanish workers

MADRID / ROME, May 9 (Reuters) – Forums, a cash-filled envelope – or “sobre” – were about how to work on the spaniards of lawyers in tourism, agriculture or construction.

COVID-19, however, may be finally paying off the “sobre”, economic data and workers’ experiences suggested – accelerating a six-year-long crackdown on Spain’s shadow economy and providing a welcome boost to the country’s public finances.

The Spanish economy was the hardest hit in the euro area by the pandemic, shrinking 11% in 2020 amid tough lockdowns. Two years later, it still has returned to its pre-virus level.

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But something unexpected has happened: Overall tax receipts and the number of people in official employment are now higher than the point at which COVID-19 struck.

According to Reuters, interviewed by labor experts, trade unionists, employers and workers, the pandemic of one unforeseen side effect has been the flush of many Spaniards out of the shadow economy and into regular employment.

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Pandemic-era hygiene measures, together with increased demand for contracts for workers, have been found to be under lockdowns during furlough payments.

While some of those factors apply to other countries, the makeup of Spain’s economy and other local factors have been significantly impacted.

“In the catering sector, there is a before and after pandemic,” said Gonzalo Fuentes, CCOO at the catering sector representative, which accounts for 12.4% of Spain’s official economy for 2019.

“Workers are realizing that underwriting doesn’t pay off, even though they have no taxes or social charges to pay.”

While measuring shadow economies, they have shown that their very nature is difficult, even before the pandemic Spain’s drive to curb hidden activity.

Spanish authorities pre-pandemic ramped-up labor inspections in tourism and agriculture, even using algorithms to detect tax fraud.

“Employers have changed. Everyone now gives you a contract,” said one 55-year-old who only identified with “AR” because he has worked for 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 and before the service started, the inspectors arrived and started to identify all the waiters. A group of them rang the olive groves,” he told Reuters.

At the same time as labor practices were changing, COVID-19 highlighted the lack of protection for informal workers and a shift in consumer behavior from hygiene protocols to a switch from cash to credit card payments, a key factor in demanding tax fraud.

“These are very important tax controls because they are traceable transactions,” the director of Spain’s tax agency, Jesus Gascon, told lawmakers on a parliamentary committee.

More than 1,000 euros ($ 1,054.00) more than 1,000 euros ($ 1,054.00) in cash as part of the government’s measures to crack down on the shadow economy.

“Paying by bank transfer has completely changed the whole agriculture sector,” said Vicente Jimenez, responsible for the agriculture branch at the CCOO union. “This is a journey of no return. A journey into the 21st century.”

Combined, these two trends had sizeable impacts.

The number of workers making social security contributions exceeded 20 million for the first time ever in April 2022, compared to just under 19 million before the pandemic.

Gross terms of taxation receipts hit 275 billion euros in 2021, compared to 248 billion in the previous year and 266 billion in 2019 before the virus hit.

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The state’s coffers for that extra boost have cut Spain’s budget deficit from 2021 to 6.9% of GDP, up 11% from the previous year, and the government’s own expectations.

“The Spanish tax system, which is one of the weaknesses of the underground economy, is finally out of the open,” Economy Minister Nadia Calviño told an April 29 news conference in Spain’s Economic Outlook.

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ITALY IN THE DARK

Data from the University of Linz economist Friedrich Schneider, an expert on shadow economics whose work has been published in the International Monetary Fund, suggests that Spain is moving away from its main Mediterranean peer, Italy.

According to Reuters, Spain’s shadow economy has grown briefly in 2020 to 17.39% of total economic activity before a sharp fall in 2021 that will see it hit 15.8% this year. That is well below Italy, Greece or Cyprus where hidden activity accounts for at least 20% of overall economic activity, according to Friedrich, and lower than the European average of 17.29% this year.

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According to Schneider’s data, stuck at around 20% of the Italian economy since 2020.

Schneider stresses the 2022 data are still the only projections and observers that size of a country’s shadow economy is also influenced by local factors.

In federalized countries such as Spain, where many taxes are managed, the propensity to pay taxes is greater, says Schneider – something that is reflected in the shadow economy in Austria or Germany.

Another factor is determining the size of an informal economy in which the number of activities is legal: Schneider noted that in the Netherlands, for example, prostitution or soft drug use are partly legal or tolerated. taxable economy.

Like Spain, Italy has also benefited from the transition from cash to bank cards.

Between 2014 and 2019, its most recent data was available on the cracking down on Italy’s own data show that it was steady. More than 200 billion euros of EU funds have been returned to the European Commission with Italy’s post-pandemic recovery plan agreed. Official data show that some 18.5% of taxes in Italy were evaded in 2019.

“We have done a lot to curb evasion but there is still a lot to be done,” said Alessandro Santoro, an economics professor who advises the Italian government that decisive progress could be made by expanding the finance ministry’s databases and easing privacy protection legislation. .

Back in Spain, the shadow economy of one area remains deeply-rooted: the employment of undocumented workers whose livelihoods are often too precarious for them to be challenged by unscrupulous employers.

JC, a 27-year-old Colombian, entered Spain three years ago and has moved from a bar to a job in a factory – but never secured a contract to become a legal resident.

“(My employer) told me not this year … He saves a lot of money by keeping me irregular. Maybe next year.”

($ 1 = 0.9488 euros)

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Reporting by Belén Carreño in Madrid and Gavin Jones in Rome; Editing by Mark John and Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.

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