Via Wolf Street

During the last crisis, Madrid ramped up the tax burden on the self-employed to historic highs while wasting vast sums on corporations and banks. Same thing on an even bigger scale is now in the offing.

By Nick Corbishley, for WOLF STREET:

Since Spain was put on lockdown, ten days ago, its government has repeatedly said it will do everything within its powers to insulate the self-employed from the worst of the economic fallout. It was a lie. All Madrid has really offered them (or should I say, us) is the opportunity to get into (more) debt. That debt will be provided by the banks, who will get to enjoy all of the interest paid on it, but it will be underwritten by the government to the tune of 80%.

In other words, if you’re self-employed or a small business owner and most or all of your business activity has come to a grinding halt and your earnings have plunged while your fixed costs remain pretty much the same, the only way you can try to solve that problem is by taking on (more) debt. This might make sense if you have a reasonable prospect of generating a healthy income in the near future.

But that is pretty unlikely, all things considered. Once the coronavirus has been brought under some semblance of control, the economy, both of Spain and most of the rest of the world, will probably remain very challenged for a while. On the bright side, so to speak, if things don’t work out and you end up defaulting on the debt, it will be taxpayers, including your relatives and friends — not the banks — that will pick up most of the bill.

The same deal, with certain subtle differences, has been offered up by the governments of most advanced economies. In Spain, the government has also launched tax-relief measures that will allow self employed workers and small-business owners to delay paying up to €30,000 worth of taxes by up to six months, although the interest starts kicking in straight after the third month.

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But that’s where the assistance more or less ends. Madrid has prioritized helping out businesses, particularly large ones with overbearing debt burdens, and full-time contracted workers, more than a million of whom have already been temporarily laid off in the last 10 days. Once those workers’ paperwork is done, which could be a while given the sheer numbers, they can claim unemployment benefits equivalent to 70% of their former earnings (up to a certain limit). This is preferable to losing their jobs for good, though there’s no guarantee they’ll still have jobs when their workplaces reopen.

By contrast, what Spain’s self-employed workers need, at the barest minimum, is a break from having to pay their monthly social security contribution (minimum amount: €290, one of the highest levels in the EU). It would ease the burden a little, at least for the duration of the lockdown. And it would not only be easy for the government to do, it would also be pretty cheap. The total fiscal impact of suspending the payment for two months would be a tiny fraction — less than 1% — of the total amount of money (€200 billion) the government has pledged to mobilize to try to combat the economic effects of the coronavirus.

Yet in spite of all that and despite coming under concerted pressure from myriad directions, including Spain’s Chamber of Commerce, the government refuses to cancel, suspend or reduce the payment. If, by next Tuesday, that doesn’t change, all of Spain’s self-employed, including many gig economy workers, many of whom are generating next to no revenues, have next to no cashflow and next to no savings, will have to dish out €290.

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The only way to avoid this fate is to qualify for the government’s “extraordinary” support program, which entitles you to no more than €660 of monthly assistance — the equivalent of roughly two-thirds of Spain’s minimum wage. There’s just one catch: in order to qualify for the program, all of your activities must have been terminated as a result of the lockdown. Either that or you must have lost at least 75% of your earnings (compared to your median monthly income over the last half year).

Even if you do qualify for the program, the red tape probably won’t be complete before the end of this month, meaning you will still have to pay the €290 in social security, which will be reimbursed at some point in the future. The problem with this is that it presupposes that you will have enough money in your account at the end of the month to cover the payment; if you don’t you will be liable for non-payment charges, which the government will not reimburse. More sinister still, if the payment doesn’t go through, you will effectively be in debt to the government, which automatically disqualifies you from the program.

Untold hundreds of thousands of self-employed workers won’t qualify for the program at all since they, like me, have kept up at least some of their professional activities, as a basic act of financial survival. In my own case, I’m fortunate in that I can still write for this esteemed publication [Wolf here: To avoid confusion, and for people who didn’t see the /sarc tag, by “esteemed publication,” Nick means WOLF STREET. And Nick, keep the articles coming!). Nonetheless, I, like many of my friends, will probably suffer a 40-60% hit to my income over the course of the lockdown.

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Over the next two months, Spain’s legions of self-employed workers stand to lose an estimated €18 billion in income, according to Lorenzo Amor, the president of the Association of Self-Employed Workers (ATA). By the time the lockdown is over, as many as a million of them could have hit the wall, most of them needlessly.

Sadly, none of this comes as much of a surprise. Spain’s government institutions have never much cared for the self-employed. During the last crisis, when Mariano Rajoy’s graft-ridden administration was holding the reins, Madrid ramped up the tax burden of self-employed workers to historic highs, even as they were dropping like flies, while wasting vast sums of public money on propping up floundering debt-burdened corporations and banks. Sadly, the same thing, on an even bigger scale, is now in the offing. By Nick Corbishley, for WOLF STREET.

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