I've talked about economiuc crisis for a long time.
I've got a book coming out about what I think we need to do about it next week (I'm assured the printing is underway, now).
And let's now have no doubt about it: the crisis is for real.
Italy can no longer pretend it is not bust: it is.
I stress, it's not bust because of overspending. It's not been profligate. It could pay for the services it has consumed, and did. It just chose not to do so through taxes. By that I mean it's bust because of the size of its shadow economy. That's 27% of its GDP. Its effective tax rate is 43.1%. It loses, annually, as a result about €175 billion in tax.
Its debt is about €1.9 trillion.
That's a bit over a decade of tax evasion.
That's why Italy is in crisis.
That is why the EU is in crisis.
That is why the world is in crisis.
The tax gap is the problem.
Collecting tax will be the solution.
Of course there are massive other issues to be addressed.
But that's the cause of this crisis. And that's in the long run its solution.
And that's a recognition that is absent right now.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Closing the tax gap won’t address the derivatives problem. More is owed there than there is available in existence on the planet, indeed in the universe, several universes probably. After a while it becomes pointless counting. Everyone paying their taxes won’t address that. The system’s dead, done, nailed to the perch. We need a new one and as I’ve suggested here before, the best way to go about that is to create it ourselves from scratch.
BB
The tax gap is something I have been going on about for some time now, at least ten years. You are very right about the nature of the problem. What I would argue, though, is that the tax gap is an effect that in turn has become the cause of other problems. The whole thing is so very complex that it is almost impossible now to disentangle the history. It is a collection of all the usual human frailties let loose in finance and government.
What?? The Italians evade tax, who would have thought!
You are of course totally right, but it has been going on for years. I remember being stopped by the fiscal police in Venice 20 years ago to check if I had got a receiopt from the restuarant where I just had lunch. I hadn’t, so I was taken back to the restuarant who got fined 100,000 Lire.
The only real way to reduce tax evasion through the grey economy is by makling it difficult to deal in cash. Force banks to report any transaction over £1000 in cash and charge cash handling fees for any transaction over £250 in cash. That will stop people paying their builders £50,000 in cash in wads of £8,000 to avoid them being reported. And suddenly VAT and income tax will jump.
We agree on this
Easily countered by creating a virtual exchange currency. The goverment need have no knowledge of it.This is the kind of thing they have between businesses in German already, although there’s no secret about it. I’m afraid you gentlemen are forgetting which era we’re all in.
BB
While Bitcoins might be useful for paying for your drugs on Silk Road (and even then I seem to remember seeing that the anonymity had been cracked recently), I can’t imagine that someone who is quite prepared to pay cash for building work, is going to do so with a virtual currency. And they would have to earn their income in a vitrual currency or have a paper trail of conversion into the virtual currency!
Go do some reading then….
You’ll find all you’ve just written can be wrong
Once again I visited old friends in Germany recently. Many, many older people in wealthy EU countries are dependent on the services of younger people from poor EU countries in order to live at home. The younger people act as house and home keepers and provide care for the elderly. It is a 100% underground economy. It is also wealthy Europe’s answer to old folks’ homes. There is a lot of legislating to be done to bring this service industry onto the grid. Older people cannot afford this care at plus 56% (30% for income taxes plus 20% for VAT). Here in Canada, after much lobbying, we have legislation protecting live-in child care service workers (“nannies”). It stipulates a living wage and working conditions. This helps to force an otherwise underground industry to the surface. The EU needs to put similar laws in place. But it will be tough because underlying these habits of hiring underground workers is a deeply rooted class structure that says those that can afford it deserve to escape taxes and deserve cheap labour. ‘Let these off-the-grid immigrants make out as best they can in a parallel market.’ This is wrong.
As you say, tax avoidance and evasion is probably the main cause of the EU’s ills. However, the banking crisis and the way the powerful banking lobby is effectively running the economic system is not helping either.
The way that rating agencies are downgrading EU countries debt like Greece and Italy and banks are speculating against them coupled with these same banks picking up their national assets for pennies on the pound is nothing short of criminal. The insane austerity measures that any idiot can see is making matters worse is contributing hugely to this mess as well. It is utterly corrupt and criminal what is happening.
How is countries whose monetary systems are wholly based on debt and are massively in debt (or at least, the banks are) supposed to pay anything back if the very EU policies imposed on them are designed to deliberately prohibit growth?
It’s insane! This crisis will only deepen unless the austerity shackles are removed and economic sanity is restored.
@Stevo!! Fully agree with your comment.
And “rating agencies” of the likes of Standard & Poors, Fitch and Moody’s, the fortune tellers that gave triple“A” ratings to sub-prime loans, but only until they bought the world economy the first financial crisis in 2008. And their impenetrable crystal ball(s) again failed to be reliable at prophesying the present Euro zone crisis.
Where would all be without their miraculous foresight?
Probably much better off!
But at least they help reduce unemployment – Moody’s alone employs 4,500 people dispersed over twenty six different countries.
@Robin Corner
Do not be so acerbic about the credibility of Standard & Poor’s Ratings Services
They have just lowered the Isle of Man’s long-term sovereign rating from triple ”A” citing the British crown dependency’s external vulnerabilities and lack of monetary flexibility as credit weaknesses.
S&P also state the island’s ability to diversify its economy further away from financial-sector-related activities could potentially trigger an upgrade. Which almost implies that if they had taken Richard Murphy’s advice the island’s economy would be in better shape.
And we don’t think that Richard has crystal balls either!
@ PSG; why are you commenting on Robin Corners posts when you are the same person?
I would not normally llo this
On this occasion I thought it was don with humour and was unlikely to misleed
I totally agree Richard. All too often commentators say the answer to sovereign debt is to implement ‘reforms’ which usually means higher pension ages, eradication of workers’ rights and mass privatisation. These reforms are shockingly regressive and leave the rich completely unscathed and, in the case of increased privatisation, enriched further still.
Very little is made of the corruption and tax evasion all pervasive among the top 1% in these countries. Only France’s decision to (temporarily) raise corporation tax by 5% stands out as a reform which does not directly affect working people. The answer, of course, is for the rich and profiteering corporations to be taxed appropriately. Profits are huge and what isn’t declared is laundered through tax havens. The scale of these sums is at odds with the claim that austerity is necessary and there is no money left.
The UK and many European countries are now embarking on an austerity program which will bring misery, uncertainty and impoverishment to the many to avoid the awkward demand that the rich pay their fair share.
One other point regarding the Eurozone crisis. Why do Cameron and Osborne keep heckling at the Eurozone leaders to ‘sort out this crisis’ without offering any constructive advice of their own? They should take Sarkozy’s advice and shut up.
Cameron and Osborne (The Dimmer Twins) have no advice they can give. They’re economic illiterates.
BB
“Why do Cameron and Osborne keep heckling at the Eurozone leaders to ‘sort out this crisis’ without offering any constructive advice of their own?”
Their advice has and should be put up more of your own cash, esp Germany. Seems fair enough to me.
That. if I might say so, is the ostrich approach
Consider this article by a Canadian Journalist:
https://www.theglobeandmail.com/news/opinions/margaret-wente/occupiers-are-blaming-the-wrong-people/article2226104/
I don’t know if the ‘tax gap’ is entirely to blame for our current situation….
You think the comment of a conceited Canadian commentator who wants all women (bar those like her who lunch) tied to a sink and no one to study sociology proves me wrong?
Think again