Monday, February 25, 2013

How to fix the black money mess in Spain

Every time I hear about new regulations that are supposedly going to rid the country of the black money scourge and turn all businessmen and women into law abiding citizens, I laugh (in a sad kind of way).

Paying under the table has a lot of disadvantages and associated costs (other than the obvious threat of prosecution). Things like theft and breach of contract are almost impossible to prove, and the secretive nature makes it difficult to know whether you are really getting a good price. On the opposite side, there are the benefits and costs associated with white money (taxes, legal recourse, not going to jail, etc).

When the costs of using white money outweigh the costs of using black money, you get something like Spain.

More regulation usually has the opposite of the intended effect, and just make it even more costly to go the legitimate route, increasing the value of using black money.

The only way to sanity I would see would be to radically reduce the amount of regulation, red tape and bureaucracy involved in the running of a legitimate business.

Imagine being able to open a business by using your online banking… click “create company”, add employees (it does all the taxes, social security, withholding for you), automatically submit invoices, figuring out VAT, etc for you.

At the same time, increase the value of white money by making it much faster and easier to go after non-paying clients. Since banks would have a better view of how your business is working, and whether it makes sense to provide credit. The government could even inject money into the system by accelerating invoice payment and netting invoices against tax payments.

1 comment:

Anonymous said...

Great post, although one should not forget to mention the politician's being one bad example. Black money has been ruling political parties, even local and regional government, to such an extend most small and medium sized business owners have done and still do the same.