The underground economy falls to 15.8% and is already one and a half points below the EU average

The anti-crisis shield raised by the government following the outbreak of the pandemic reduced the percentage of the underground economy to 15.8% in 2022, which is 1.5% below the EU average. This is the biggest difference recorded in 20 years. The protection launched by the government starting in 2020 has helped to ensure that a large part of those who carried out their activity from the back to the tax agency, with the aim of accessing the assistance provided by Moncloa, regularize their situation. “The cessation benefit for the self-employed, ERTES or IMV for employees, would have encouraged informal employment,” the Office of National Prospects and Strategy points out.

And cash payments and pressure from Treasury inspectors have helped reduce unreported transactions, the biggest impact of which is concentrated in agricultural jobs, some hospitality sectors or hidden rental transactions. Ministry led by Mary Jesus Montero has increased inspections by 8.8% in 2022. More than 2,300 were carried out in a strategy to crack down on harassment and tax evasion, which would continue for the next few years. The blockade had an impact on income. Inflation aligned – in 2022 – with tax revenue in all EU countries; However, in Spain they grew more than others. They made 14.4% more than they did in 2021. A gap experts attribute to the Treasury's harassment of tax evasion.

Direct income achieved by the tax agency in its control activities increased by 16.6%, special attention 6,000 million in collection from the payment of VAT, unexpectedly, in a year -2022- in which tax cuts on energy and food came into effect. “The percentage of household consumption subject to VAT grew between six and seven points without significant variations in terms, which can only be explained by the emergence of the underground economy,” the analysis published today by Esade and signed by Francisco. De la Torre recalled that this increase in income occurred despite the fact that “neither gross domestic product nor consumption had recovered to pre-pandemic levels.”

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Recent data published by the European Analytical Service supports Sanchez's executive action. Spain managed to reduce its underground economy by 1.1% in one year. In other countries around us the behavior was very different. Evasion increased by 1.1% in France; Italy marked a rate of 20.3% after adding another 0.1% in 2022; And the Netherlands saw its irregular economy rise 0.4% to 8.2%. Only Portugal showed a similar trend to Spain. It managed to reduce its rate by eight-tenths, to 15.7%. A report on the taxation of the informal economy in the European Union points to 2015 as a turning point, especially for Spain and Portugal, which began to slowly reduce the size of their underground economy. In contrast, Italy and Greece could not control their informal activity. The document states that this is due to the tax system, high number of self-employed people and unemployment rate in these two countries.

Long term goals

Treasury's offensive against the underground economy will continue. “We maintain the objectives of progressive reduction of the underground economy between now and 2050,” state government sources said. The goal is realistic. Changed the effect of anti-crisis armor, The Treasury wants to cut it by eight-tenths over eight years, until taking it to 15% by 2030. The long term goal is very ambitious. Aim to reduce tax evasion to 12% by 2040 and 10% by 2050.

Moncloa's strategy will support compliance with financial regulations. Pedro Sánchez expected yesterday that the extraordinary collection obtained from the regularization of part of the underground activity will be the key to reducing the public deficit by one point in 2023, in which year the negative balance will decrease to 3.7%. The department led by Montero expects tax revenues to increase by 9% to 292,378 in 2024, moving towards a path confirmed with the European Commission. “This allows for greater levels of public spending to address social needs or reduce public deficits,” de la Torre recalls. Also, budget expansion constrains the government's spending capacity, including an adjustment that is critical to the stability of the accounts. Until 2023, the administrator manages to reduce the public debt ratio by four percentage points to 107.7%.

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Tax agency audits recorded 435 million

Direct inspections generated 435 million euros, found only in the regulation of indirect sales quotas, the ministry said. Added to this are 122 million sanctions resulting from more than 2,600 audit reports on 1,000 taxpayers. Even so, the Association of Treasury Technicians (GESTA) is urging those in Montero to redouble their efforts. It estimates that about 6.2 billion euros could be collected annually through a deep overhaul of the tax agency.

“We must emphasize what has worked, the information obligations of payment methods, intensifying them and extending them to other payment methods that leave a trace,” the Esade report points out, however, acknowledging that fraud will move. From difficult procedures to sophisticated procedures. De la Torre also insists that the most effective measure is to “convince the Spaniards that they must pay their taxes.”

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