Eurozone: Black economy loves the South

Press conference by Milan Martin Cvikl, Member of the European Court of Auditors, on the special report on whether the control of “customs procedure 42” prevents and detects Value Added Tax (VAT) evasion. “Customs procedure 42”, is a mechanism an EU importer uses in order to obtain a VAT exemption. (EC Audiovisual Services).

Black economy has been traditionally the weak point for a number of European countries in the South of the Old Continent. Greece, Italy, Spain, Portugal, Cyprus and Malta to name only the Eurozone countries with black economy percentages around 20%, are usually on the head of European Commission’s country lists with economic activities outside the fiscal universe.The standard practice is to avoid payments of Value Added Tax (VAT), income taxes and social security contributions.

Given that all these amount to anything around 50% or more of gross personal incomes for small businessmen and independent professionals, the incentive is very strong. The question is however what those people risk if caught, and the less severe the punishment the more extended the phenomenon is.

However there are more parameters in this equation. For example the weight of the agricultural and the construction sectors of the economy play an important role, given that those sectors are more prone than others to go black. The size of self-employment plays also a crucial role and in countries like Greece and Italy, the customer very rarely gets a receipt for the services or the goods he or she buys.

According to European Commission estimates for last year 2012 black economy is particularly high in Greece with an estimated 25% of total activities being conducted in the black market, Italy with 21.6%, Spain 19.2%, Portugal 19.4%, Cyprus 25.6%, Malta 25.3% and an average for the entire Eurozone at 15%. It goes without saying that black economy is less extended in the north of Eurozone with Finland at 13.5%, Germany 13.3%, Austria 7%.

France is one of the less stricken by black economy country with only 10% of its economic activities being realised outside the fiscal sun. The European Commission recognises that it is very difficult to estimate the exact weight of the black economy. In broad terms black economy has being growing during the first years of this decade but after 2005 recedes. Overall percentages of black economy in Eurozone are estimated at 17.6% during 2005, 15.5% in 2010 and 15% last year.