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Parallel economy represents a quarter of the country’s wealt

By CHRIS GRAEME

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The amount of money that the Portuguese government fails to collect in taxes would be enough to balance the State Budget to within the three per cent stipulated by the European Union Stability & Growth Pact.

The estimated €40 billion generated from the black economy would prove sufficient to build five new international airports, pay for 11 TGV high-speed rail link projects, including the bridge, and make it completely unnecessary for the country to seek the need of either the International Monetary Fund or the European Central Bank.

Portugal’s parallel economy had stabilised in 1994 but has soared again because of the current financial crisis and recession.

The greatest leap in undeclared earnings occurred between 2008 and 2009 when the black economy represented 24.2% of Portugal’s GDP – a considerable increase in comparison to 1970 when it stood at 9.3%.

According to analysts, Portugal’s high business tax rates of 25% and Value Added Tax at 21% are factors that have contributed to this phenomenon which particularly affects the civil construction industry and service providers.

The latest statistics emerged from an investigation carried out by Porto University’s Faculty of Economics (FEP) which last week published the results of its ENR (Non-Registered Economic Activity) on the same day that the world marked the International Day in the Fight against Corruption.

Nuno Gonçalves, who oversaw the project, explained to the business daily Jornal de Notícias that the increase was directly related with the deepening of the economic crisis which had resulted in an increase in taxes and unemployment.

The researcher also believed that future hikes in social security contributions and taxes would only serve to increase the size of the parallel economy where billions of untaxed revenues are generated through under-the-table deals.

He also noted that the problem would only get worse if counter measures were not taken such as improving tax enforcement and anti-tax fraud measures.

Tax evasion

Throughout the last few decades, the evolution of tax evasion has not always remained constant. In the 1970s and 1980s, there was a reduction in the phenomenon, followed by an increase until the middle of the 1990s after which tax evasion reached a plateau at 20% of GDP.

From 2007 onwards, however, the curve once again began to climb to the current levels of non-tax declaration which stood at 22.5% in 2008 and 24.2% last year.

The study also revealed that the high amount of State support in grants and subsidies to families and companies in recent years had actually reinforced that upwards tendency.

The “blame” has been laid at the door of excessive regulations and conditions which so often accompany benefits concession.

Examples of the parallel economy include people who arrange a second job paying cash-in-hand or those working on the side while receiving State unemployment benefits.

Agriculture, small-time construction, restaurant and bar work, service provision, domestic and cleaning work were also more vulnerable to non-declared cash-in-hand income.