Lorraine Williamson
For decades, Spain has lived with a shadow economy woven into its social and economic fabric. From cash-in-hand wages to envelopes quietly passed across notary tables, black money has long been part of everyday transactions. While much has changed since the transition to democracy, this habit of avoiding tax and paperwork lingers—costing the state billions of euros every year.
Even today, it’s not unusual to find small businesses, cafés, and tradespeople preferring cash over cards. Sometimes it’s convenience. Often, it’s about avoiding the taxman. But this “under-the-table” economy—though widely tolerated—comes with heavy consequences for public services and fair competition.
A widespread problem with deep regional roots
A new joint study by the University of Murcia and the Socioeconomic Council of the Region of Murcia (CES) paints a stark picture. In six autonomous regions, the shadow economy accounts for more than 16% of GDP, with Andalucia leading at nearly 20%. Close behind are the Canary Islands (18.9%), Extremadura (18.2%), Castilla-La Mancha (17.6%), Murcia (16.9%), and Castilla y León (16.2%).
The reasons vary, but are painfully familiar. In the south, seasonal jobs in tourism and agriculture dominate, leaving many workers without contracts. Oversight is weak—labour inspectors are few, and bureaucracy discourages compliance. As one researcher put it, “When the system feels too heavy to navigate, people step outside it.”
What counts as black money?
Not all undeclared income stems from criminal intent. Spain’s black economy includes everything from casual cleaning jobs to off-the-books rentals and small construction work. In some cases, it’s about survival rather than deceit. Yet even these small omissions add up to enormous losses.
On the darker side, the same ecosystem enables fraud, corruption, and smuggling, eroding trust in institutions meant to uphold fairness. The more accepted it becomes, the harder it is to dismantle.
Billions lost—and public services strain
The Spanish treasury forfeits billions of euros annually due to undeclared earnings and unpaid social contributions. Those missing funds translate into underfunded hospitals, longer waiting lists, and schools struggling for resources. Regions already facing high unemployment are hit hardest, perpetuating a cycle of poverty and informality.
Every euro hidden from the tax office is a euro not spent on healthcare, infrastructure, or pensions. The irony is striking: while many justify cash payments as a way to “get by,” they ultimately contribute to the very deficiencies they complain about.
Unfair competition and vulnerable workers
For legitimate businesses, competing against those who sidestep taxes and employment laws is an uphill battle. Companies that declare every euro struggle to match prices offered by competitors who operate in the shadows. This undercuts honest entrepreneurship and encourages others to follow suit just to survive.
For workers, the risks are personal. Without contracts, there’s no entitlement to sick pay, unemployment benefits, or pension rights. A single accident or dispute can mean losing everything. Informal arrangements might offer flexibility, but they come at the cost of security and dignity.
Europe’s black sheep
Compared with its northern neighbours, Spain stands out for all the wrong reasons. With around 24% of GDP linked to undeclared activity, it trails only Italy and Greece in Europe’s shadow economy rankings. Countries such as Germany and France, where the rate sits below 10%, show how tighter tax controls and stronger labour protections make a difference.
The comparison highlights a deeper issue: trust. Where citizens feel their taxes are used effectively—and where bureaucracy isn’t a barrier—participation in the formal economy rises.
Reform or repeat?
The Murcia study suggests that formalising Spain’s informal work could generate €1.2 to €1.4 billion in additional annual tax revenue. That money could transform healthcare, education, and infrastructure in struggling regions.
Experts recommend a mix of digitalisation, simplification, and enforcement—reducing red tape, investing in more inspections, and rewarding compliance through tax incentives. They argue that transparency is the only real way to bring Spain’s cash economy into the light.
Can Spain finally break the cycle?
Spain’s black money problem isn’t new—it’s inherited. Generations have seen it as a practical workaround, not a crime. But the cost has become too high to ignore. Modernisation, trust-building, and fairer systems could finally start to shift the culture.
The question is whether Spain’s institutions and citizens are ready to relinquish the “sobre en efectivo” mentality and fully enter the light.
Source: El Economista