Like those “blood-red”, conservative Americans, South Europeans hate to pay taxes. The only difference is, they don't talk about it. Unlike US conservatives, South Europeans have never raised their anti-tax convictions to the level of ideology. When it comes to VAT, they just don't pay. Other taxes are shunned if possible. That's why Greek, Italian and Spanish practices are undermining public finance and becoming a threat to US investors and other international financial market operators that “decide” whether the euro survives.
Beyond this paradox, however, there is a truth to be faced by the South Europeans. Their generous welfare states are built on sand. Spain, probably the best organized of the three, proves the point.
Who wouldn't like to have free medication for all chronic illnesses and heavily subsidized prices for practically all medicine? What insecure 20-year-old wouldn't jump for joy at the chance of having a free nose job or breast implant? Who wouldn't love to have Spanish job security, with up to 45 days of severance pay for each year worked? Who indeed, except employers – who in turn survive by ignoring the obligatory value-added tax (VAT) on their sales.
For that matter, who wouldn't like to be a government employee in a regional government like that of Valencia or Catalonia, where mid- to upper level employees have an official car at their free disposal - on or off duty, including vacations? Who would be afraid to be unemployed in a country where (provided you have had a steady job until then) you have two years of unemployment benefits to the tune of 500 euros per month for a single person and 1200-1400 euros for a family? Where you can turn down a job offer from the employment office and still retain your benefits? And where you, after receiving your unemployment benefit, could buzz off to your black-economy job around the corner without a chance of getting caught?
Surely, all of this cannot be true? But
as far as I can tell, it is.* Of course, the unemployment benefit will
only keep you minimally afloat; you will need some other assistance
or income. And, naturally, it happens that the VAT is paid. In larger
companies income tax and social benefit contributions are regularly
withheld by employers. But in the Spanish medium-sized town near
where I live, only the cafés and restaurants and bigger stores seem
to pay VAT. Very few of the other shops and businesses give you a
receipt unless you ask for it. Plumbers and electricians never even
mention VAT unless you ask. Gardeners, who are still among the busy
people in Spain, apparently never ask for VAT. To pay by bank
transfer is unusual.
Today 4,5 million Spaniards are
registered as unemployed, and a general strike is on to protest their
plight. A study published by the Spanish savings banks' association
FUNCAS last year estimated that the Spanish black (unofficial or
“submerged”) economy provides jobs for 4 million people, and
stands for 17% of the GDP. The study was conducted by economists at
the Universidad Rey Juan Carlos, near
Madrid. (Source: Typically Spanish,
March 3, 2011.)
Of course, this is unsustainable. In an article entitled “Don't forget my invoice!” (la Informacion, March 12), the Federation of Municipalities and Provinces of Valencia was quoted to the effect that “practically all” the municipalities of the region were asking for the bailout offered by Madrid to cover their unpaid bills, money owed to local businesses and self-employed people. A printed version of the same story said more starkly that without this aid, 80% of the municipalities in the Valencia region would go broke during 2012. Pharmacies are no longer able to furnish many brands of medication because their bills have not been paid by the regional government. The city of Valencia has not paid its own electricity or gas bills in years.
The general strike that started March 29 (2012) protested the labor reform of the conservative Partido Popular government of Mariano Rajoy. His measure is (inter alia) to draw down the severance pay from 45 to an average of 33 days per year worked. If you have worked 5 years for your employer you get 5 x 33 days' extra pay when you are laid off. The EU standard is nowhere near that high. A welfare state like Norway offers no more than one month's pay in a similar situation.
When workers are neither paid nor dismissed because there is no money for either – and they continue to work just to maintain their salary claim (BBC World, March 29, 2012) – things are not what they seem. Something is fundamentally wrong. A glance at similar tendencies in Italy and Greece tell me it will not be easily corrected.
Am I too pessimistic? A Sunday last summer my wife and I stopped for coffee in a little town in Valencia's Ebro Delta and were puzzled by the sight of a big official car from the city of Barcelona (clearly marked) – far away from home – that tried to park at the curb next to us. The car, loaded with beach gear and children, was clearly not there on official business. Bystanders were not slow to react. In a flash, jeering locals told the driver what they thought of his audacious presence and chased him away. Some sense of moral obligation evidently survives, in other words, at least when it comes to conspicuous over-consumption of “public” goods. Let's hope it grows to a broader vision encompassing more of Southern Europe.
*Until the Rajoy government started its reforms.
3 comments:
Dear Olav, possibly you are a bit too pessimistic, but then again, it might be realistic… Looking from the (former) beacon of welfare states, Sweden, it is quite astonishing to hear about benefits such as free medical care and very large compensations when losing your job (at least if you have been at the place for many years). By the way, it is not perfectly clear to me why this compensation should be a function of the number of unemployment years in that company. Are your needs larger in cases where you have been at the same place for a long time? Is it reasonable from a society perspective to put a premium on not looking for new positions, but rather stay put? What consequences does this have for work force flexibility and adaptability, let alone personal development? In Sweden, the only ones that come close to these types of benefits are the CEOs of large companies (private as well as public) who tend to get hefty compensations irrespective of the profits of the company, for what it seems.
As for the free medical treatment, I am definitively in favor of substantial subsidies, but it is, of course, not rational to have a system where you don’t have to pay anything. This leads to over-consumption (why should medical care be any different than other goods?), and I have to agree with the economists on this one – given that society wants to support not so well off people, it would be better to give the money directly to these people, to spend on medical care or – if preferred – something else. That would mean making more use of the subsidies. If politically possible…
Regards, Björn H
Estimado Olav, thanks for your clear-cut, at times almost strident essay on the Mediterranean psyche. About the facts you present so lavishly here cannot be much debate. That’s why I had some hesitations in countering your opinion. Still, I couldn’t shrug off the feeling that you vision is a bit lopsided. Let me try to explain what I mean by this claim.
Firstly, the South European welfare states cannot possibly be characterised as “generous” if you compare them with the more northern countries of Europe. France covers 67% of the Dutch Public Health care packet and Spain about 37%. Lots of things are left out like dentist care and long-time care. Public social spending in Spain accounts for 21% of GNP, compared with 27% or more for the Northern countries. Adults working in public services in Spain mount to 9% and in 15 other member states 15%.In Sweden 1 in 4 adults work in welfare state services, whereas in Spain it is just 1 in 10.
The revenues of the state in Spain form 34% of GNP, against 44% in 15 other member states. So Spain has the lowest state revenues and the poorest welfare state.
Now I hear you say “I told you so! It is all due to tax evasion and fraud, like I put in my essay.” That’s only part of the story and maybe not even the biggest one.
Secondly, why is it better to put anti-tax convictions into an ideology in stead of simply practice it!?? There seems to be a very good explanation (though no excuse) for the wide spread tax evasion and fraud among the medium to middle class groups in Spain. During the last 15 years the higher and top earners managed by law to lower their taxes to an absolute minimum, creating a vast hole in the revenues of the state. The PSOE pledged its adherence of neo-liberalism by mouth of Zapatero before coming to power and, when in power, abolished the Wealth Tax and implemented cuts in the inheritance tax in the period of 2004-2008 – in doing so he robbed the state revenue of 4.650 million euros, bringing Spain into debt with this generous gift to the high earners. To keep the underclass subdued the economists promised them a trickling down effect, which proved to be a lie after all. Since 1992 (in preparation for the euro) the salaries of the ordinary workers dropped from 70% to 61% of national income. This development got camouflaged by the lowering of the rent of loans and mortgages, which stimulated the construction and housing bubble and got ordinary people climbing into the housing market debt trap. Banks, real estate and the construction industry were the motor of the economic growth (“the Spanish miracle”) – all funded with debt. When the bubble burst at last, the lower and medium income earners were hardest hit. The massive unemployment gave birth to a mentality of using all means possible to stay financially afloat, rigging the system if and where they could. Not very ethical, but understandable, if you take in account the enormous inequality in income of top earners and the rest.
So it is not the black market that is undermining the public finances, causing the big hole in the state revenue, but the regressive taxation and unemployment are the motors of the black market.
So spreading the gospel of austerity by cutting public spending is totally wrong-headed. Spain has only 72% in social expenditure, caused by very regressive tax policies and wide-spread fiscal fraud among the high income groups and corporations. Going after these criminals would provide the treasury with 88.000 euros. What he should do is restoring the wealth tax and inheritance tax to the level of 2004 and see to it that a well funded enforcement agency makes them pay up.
Therefore, if Sweden can do it, why not Spain? Restore the taxation balance in so much as restoring the wealth tax, heighten the inheritance tax, close the loopholes for tax evasion (Emilio Botin, Santander topbanker, sluiced 2.000 million euros to a Swiss bank account) and expand the welfare state. Only then a government has the moral right to go after the little guys.
Charles Rodijk
Charles, I thank you for lavishing your attention on what I write, but (as often before) you miss some of the most central points.
What I am driving at in criticizing the generosity of the Spanish welfare state is not, of course, generosity per se, but the fact that it isn't paid for, and hasn't been for a long time. Health service is a major reason why the autonomous regions of Spain are overburdened with debt - way beyond their ability to even service it, and to the point where it is an open question whether the central government in Madrid can save them. Generosity in welfare is pointless if it isn't sustainable - and it isn't sustainable if it runs on borrowed money. Morover, arguing about this in specific monetary terms the way you do is simply misleading and beside the point.*
Furthermore, as you may have seen in recent press reports, two of the big black holes in the financing of the Spanish health system have been the so-called «health tourism» (1) from abroad and (2) from other Spanish regions. There have been inadequate or non-existent procedures to recover the cost of operations in Spanish hospitals when the patient is a foreigner or a resident of a different region in Spain. (See esp El Mundo during the past week or so.) Bottom line: the welfare state has to be paid for.
Secondly, you misunderstand the intention of my remarks in the introduction. Ideology is worthless in my scale of values, a hallmark of stupidity. So, far from admiring those conservative US Republicans (who for some reason refer to themselves as «red»), I ridicule them, because they have made anti-taxation a matter of ideology, instead of taking a practical view of things (my views on this are spelled out further in my blog «Knee-jerk conservatism ...»). In contrast, the South Europeans shut up and just don't pay, a practice I find more honest if not particularly helpful for the general outlook in a welfare state economy. It is a paradox that by practicing what US conservatives preach, the South Europeans are undermining the euro and hence the international investments of many of just those US conservatives.
The economic situation in Spain cannot be one-sidedly blamed on one side or another. As in Greece, all (or practically all) were in on it. Of course, as always some gained more, and naturally the more they gained, the more they should contribute to redressing the tax deficit, be they bankers or mayors. Many of the big fish in the game were politicians at the regional and local levels, as we see in the scandals being endlessly uncovered in the media. Party politics makes no difference - PSOE socialists have been as corrupt as PP conservatives. But when it is a daily matter for ordinary people to skip the VAT or take an unemployment benefit while working in the «subterranean sector», then overcoming the crisis has become a matter to think about not just for the big fish, but for the small fry as well.
(*The cost of public service is not comparable in a meaningful way across countries unless your sources are Eurostat, OECD, or WHO. The way you write, I have no idea what you are referring to.)
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