Austreity Measures Feed Grey Economy

January 30, 2014 Taxation in Spain

Grey Economy in SpainMADRID – The combined negative effects on the economy of government austerity measures, ongoing global financial turmoil, and a collapse in the national housing market, have fueled the grey economy in Spain.

On January 29th the trade union group Gestha issued a new statement revealing that the combined value of all financial and business activity in the Spanish grey market now accounts for nearly a quarter of the national GDP.

By using data collected from the Ministry of Finance of Spain, the experts of Gestha found that in 2012 the underground economy in the country was worth approximately EUR 253 billion, 24.6 percent of the GDP at the time, and since 2008 grey economic activity in Spain has grown at an alarming rate of at least EUR 15 billion per annum.

As one of the most noticeable indications of the spread of the problem, the report stated that now nearly 73.7 percent of all cash transactions in Spain are carried out with UER 500 notes, reputedly the most popular currency denomination large-scale unreported cash transactions.

According to the newly issued statement, the untaxed underground economy is both a cause and the effect of the government’s ongoing austerity measures, as the ongoing lack of incoming tax revenues forces the government to continue to hike taxes and to deepen spending cuts, subsequently pushing more and more people to take even further steps to avoid their tax obligations.

The researches also speculated that another significant contributor to the rise of the grey economy is the concurrent collapse of the national housing sector and the global financial collapse in 2008, two effects which cumulatively led to a significant hike in unemployment, which now stands at more than 26 percent.

Photo by: FuFu Wolf