From: Spain’s Tax-Cheat Landlords Add to Rising State Debt (Update1) By Sharon Smyth
Feb. 3 (Bloomberg) -- More than half of Spain’s landlords are dodging taxes as the rental market expands, depriving the financially strapped government of more revenue each year.
Hooray for the Spaniards!
The Spanish government, seeking to pull the country out of its deepest recession in 60 years, needs all the money it can get right now. The slump was triggered by a crash in the housing market and has left Spain with the highest budget deficit since at least 1980
Really? For what? Should a private company steal from its customers because it is in a bad financial situation?
. “The deep economic crisis in which the country is submerged is once again making the hidden economy flourish,” said Juan Jose Figares, chief analyst at Link Securities in Madrid.
Hooray!
“The government will be compelled to clamp down on rent fraud.”
So lying to the government about your rental income is rent fraud?
A drop in house prices starting in the second quarter of 2008 has forced many people who bought homes as investments to seek tenants for their properties rather than selling at a loss. At the same time, more Spaniards are trying to lease homes after they were priced out of the market in the years before the crash, making it easier for landlords to strike deals that don’t involve the taxman.
And now the Spanish government wants to make it harder for these people by taking away their money?
“During the housing boom, the state was earning so much from home sales that it wasn’t worth chasing the odd landlord,” said Fernando Encinar, co-founder of Idealista.com, Spain’s largest real estate Web site. “Now, with the economic crisis, the government really does need the money and will make efforts to prosecute tax dodgers.”
So the Spanish people are hurting financially and now government wants to take away more of their money?
Encinar, whose company lists 360,000 properties for rent and purchase, said Gestha’s estimate that 54 percent of landlords are ducking taxes “falls short of the true figure, which is set to grow further.”
“As both the landlord and the tenant make an agreement not to declare tax or their residency, there is absolutely no way to prove that tax fraud is taking place and therefore no non- declaring landlords are brought to book,” Mollinedo said.
Hooray for consenting capitalist acts!
Spain can ill afford to lose revenue it should be collecting.
No, it shouldn't be collecting it.
Rent fraud is just the tip of the iceberg, with Spaniards avoiding tax on income of 240 billion euros, equivalent to 23 percent of the economy, according to Gestha.
Hallelujah!
It is all over the MSM news that Spain is in a crisis. But who exactly is in crisis? Is it the Spanish government, the Spanish people, or both? Also, if the Spanish government were bailed out, how would they repay the money if the Spanish people refuse to pay taxes? With inflation? But of what, the Euro? It seems as if not paying taxes could topple the beast. If so, then that sends a message to everyone else all over the world. I would love to read the insights you all have of the current situation in Spain.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
I'm in the process of writing a piece on the Spanish debt crisis, with a fellow Spanish economist, although my time to do is running out. IBEX fell by 6% this morning, and so it seems as if the crisis of interventionism is beginning to unfold (although, this may be premature). Spain's budgetary problems are beyond taxes. Spain could confiscate all of the country's wealth, and it would still not be able to pay for its future debt. The problem is Spain's social programs, which make the current debt impossible to pay over time. The Spanish government is just building debt at an increasing pace.
There are several short-term "solutions". Either European countries will, in some sense, bail Spain out, or the IMF will bail Spain out. The problem is that this is a costly solution, and it will become costlier as it becomes apparent that Greece, Italy, Ireland and Portugal also need to be bailed out. Otherwise, Spain could re-introduce the Peseta and inflate it, which leads to a crisis of interventionism as well. Ultimately, the only solution is reduction of government spending, and if the Spanish government doesn't do it voluntarily (which it wont), then the market will do it.
I am currently copyediting a new piece I've been writing on debt, the Great Depression and the present crisis. I hope that it will be good enough for Mises, as I think it's an important lesson (plus, it's also a quasi-review of a very important book, written by a relatively unknown author). It pretty much re-states what I said here, only (hopefully) more eloquently.
Jonathan M. F. Catalán: Otherwise, Spain could re-introduce the Peseta and inflate it, which leads to a crisis of interventionism as well.
Can Spain even get out of the Euro system, or will the Peseta be the equivalent of California's IOUs?
The fallacies of intellectual communism, a compilation - On the nature of power
Mr Muffinburg:
that running commentary was spot on
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Could not paying taxes topple the Spanish Government?
...
Do you enjoy prison?
Where I come from, the women don't glow, but the men definitely plunder.
Jonathan M. F. Catalán:I'm in the process of writing a piece on the Spanish debt crisis, with a fellow Spanish economist, although my time to do is running out. IBEX fell by 6% this morning, and so it seems as if the crisis of interventionism is beginning to unfold (although, this may be premature). Spain's budgetary problems are beyond taxes. Spain could confiscate all of the country's wealth, and it would still not be able to pay for its future debt. The problem is Spain's social programs, which make the current debt impossible to pay over time. The Spanish government is just building debt at an increasing pace.
If the government confiscated all the country's wealth, how would the people react?
If Spain reintroduced the Peseta, what would happen to the Euro?
I'll keep an eye out for it. Good luck.
revolutionist: Could not paying taxes topple the Spanish Government? ... Do you enjoy prison?
Apparently, not all tax evaders go to prison, especially in Spain.
The fundamental necessity is for there to form an ideological opposition to all government and ideological trust for black market activity, the way I understand agorism. Otherwise government will have little trouble reasserting itself after end of crisis.
If Spain forces the EU to go bankrupt in order to bail it out, well the Spaniard would already have contributed an outstanding share to Civilization the XXI century.
Yet, more realistically, even if Spain crumbles, it won’t crumble into anarchy, but in a myriad of small states, which shall begin to reagregate anew (could nuclear weapons help?). Still, a few decades of liberalism would be welcome.
Stranger: Can Spain even get out of the Euro system, or will the Peseta be the equivalent of California's IOUs?
I honestly don't know how realistic of an option the peseta is. I'm guessing that if it were to happen Spain would use it as a parallel currency, similar to how the euro was introduced while the peseta was the official coin.
Merlin:it won’t crumble into anarchy, but in a myriad of small states, which shall begin to reagregate anew
Hopefully the collapse will put such a sour taste in the citizen's mouths, they will vehemently resist a re-Reconquista.
I can see it now:
Aren't maps so much more fun without nation-states?
Saying the crash was caused by a collapse in housing market is oversimplistic. This crisis started from far afield.
Also consider this: all European governments, even the ones with vampire appetite like Denmark, know very well a good chunk of the economy is "submerged". They have always had to put up with it because it's a safety valve against social unrest and scaring away the most productive sectors of the society. Put it this way: the State asks for 100€, but will content itself with 80€. Starting with late '70s-early '80s as fiscal needs started to mount States started to develop larger and larger bureaucracies exclusively dedicated to "fight tax evasion". It's a well know story how in 1995 the Swedish equivalent of the IRS became the largest employer in the country. The hunt for the last penny has started to become frantic in the late '90s- early '00s and right now you may as well say most governments are not leaving a stone unturned to get some quick cash. Zapatero, for all his haughty attitude and grandiloquent dialectics, is not different from a junky rifling through a garbage heap. He's squeezing the country harder both by increasing taxation and by tightening controls as never before. Will this attract foreign investors (the kind of people who bought a few villas with hopes of reselling them at a premium like so many Germans did) or scare them away?
Personally I do not believe the euro will last the next decade. Germany has benefited enormously from the euro: its exports have risen substantially, especially in Southern Europe and the wage/consumers prices system has been very stable. Problem is the countries on the edge of the system have shouldered the bill with a wage/consumers price system out of control and by becoming less and less competitive on foreign markets. It's the same as the Vertical Keiretsu system in Japan, where companies at the bottom of the pyramid are used as shock absorbers by the one at the top. Now those countries demand Germany pays back her debt. Euro-area countries like Greece are asking why Germany is quietly bailing out the Baltic Republics but won't do anything for those who bore the main of shock of the euro. But Germany must be alone in shouldering the burden of bailing out Greece and Spain. France is the main recipient of EU funds and has started another colossal round of public spending which has taken the GDP percentage linked to government intervention has climbed to around 60%: not only they haven't got money to spare but they demand more. Italy, despite her flamboyant prime minister and his traveling circus, is showing deeper and deeper cracks: the South is still completely dependent on government aids and the North is tired of being treated as a spaghetti country and not the industrial powerhouse that it is. The Center may as well secede and become a full-blown Socialist country.
Yesterday I read a piece in the paper, written by a mainstream economist, which surprisingly came to my same conclusions. The Copenhagen meeting was the high water mark of the EU. The decline started the exact moment China and Asia laughed at the high-nosed and arrogant European leaders and went merry on their way. The Union has no strength left, all its resources are necessary just to keep up the welfare system. Nobody wants to take responsibility for the crushing defeat at Copenhagen or the deeply flawed euro system. The calls to "unity" sound more and as calls to "hey, give us some money now!" and as people on the fringe of the EU discover they have been propping out Germany through out of control retail prices, higher taxes and falling living conditions the system loses more and more of its credibility.
Dear Kakugo,
Could you kindly explain why the euro has benefited Germany at the expense of other countries? What magic does Germany have that the other countries don't?
Smiling Dave: Dear Kakugo, Could you kindly explain why the euro has benefited Germany at the expense of other countries? What magic does Germany have that the other countries don't?
It's not magic. It's a very real thing. English economists use the words "wage compression" but they have a different meaning than they have in the US. To cut a very long tech talk short it means this. German workers have always been among the best paid in the world. This stems in part from their extremely high productivity, in part from agreements with unions and in part from the highly specialized nature of most of German firms. This means German exports are top quality but also very expensive: wages make up a sizable part of a product price. This meant having a problem exporting in relatively poor countries like Greece, which would undoubtedly favor either domestic products or cheaper import goods. With the euro and the host of labor-related legislation starting with the Maastricht Treaty Germany has de facto leveled the playing field: hiring and paying people in the so called Club Med countries has become increasingly more expensive. Not only that but these countries had to meet a host of expensive legislation, passing on costs on to buyers. End result: Germany, with much stabler wages, much lower legislation costs and extremely high productivity, saw her exports soar. I can assure you that many German products which were prohibitively expensive in the early '90s are now cheaper than Italian equivalents. You may ask: how were the other European leaders sucked into the scheme? It's simple: they didn't have a choice. Refusing entrance into the euro or compliance with one of the many treaties meant being shut off from the rich German market. For a country like Spain this would have been crippling. To somewhat sugarcoat the pill Germany promised gifts through EU funds: local politicians have freely used them to consolidate their power base. To sell the idea on small businessmen and artisans (who make up the vast bulk of the Club Med economies) we were told that Germany with her economic might would have guaranteed a sound monetary policy. And in Germany, they surely stuck to that but let me tell you a thing: back in the '80s people used to joke about how much a liter of beer cost in Munchen. Right now living in Bavaria it's much cheaper than living in Lombardy. I just don't move there because it's too far from favorite riding roads...