Spain Is On The Brink Of Financial Collapse Because Nobody Pays Taxes

Greek bling

Spain threatens the strength of the euro currency union far more than Greece, given the much larger economy.  And it turns out that, just like Greece, Spain has a horrendous tax-dodging problem. Which means lost tax revenue the Government has to borrow money for.

For Spain, such tax shenanigans centre around the property market where reportedly half of landlords evade taxes.


Owners are asking for payment in cash from tenants to avoid tax on 2.5 billion euros ($3.5 billion) of earnings annually, the Gestha union of tax inspectors estimates. An increase in rental properties nationwide hasn’t generated any more tax revenue.

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. Taxes go unpaid on income equal to about a quarter of gross domestic product, Gestha estimates.

Encinar, whose company lists 360,000 properties for rent and purchase, said Gestha’s estimate that 54 per cent of landlords are ducking taxes “falls short of the true figure, which is set to grow further.”

So let’s see, as a back of the envelope calculation, $3.5 billion a year for the last 10 years would mean $35 billion in government expenditures which required debt to finance versus using tax revenue. Given that a $35 billion dollar European bailout for Spain, today, would make headlines and likely remove market concerns regarding Spain’s financial situation, stories of lax tax enforcement show how Spain only has itself to blame here.

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