Spain to pass the underground economy Plan to help Budget, employment

April 29, 2011, 4: 17 am EDT by Emma Ross-Thomas

(Updated with data from unemployment in the eighth paragraph).

April 29 (Bloomberg) - Spain unveil underground repression employment so that the Government seeks to shrink one of the largest economies in shadow of the region, strengthen tax revenues and reduce the unemployment rate over high European Union.The plan will provide "incentives" to employers to declare workers not registered before that tougher sanctions on illegal employment are imposed within a period of three months, Labour Minister Valeriano Gomez said yesterday. Today, the Cabinet is due to approve the plan, which also aims to prevent people from working informally while claiming government benefits. Gomez will hold a press conference at 1: 45 pm to explain their actions.The Spain Socialist Government is fighting the shadow economy, worth almost a quarter of domestic product, according to the union of the Spain of tax inspectors. In the efforts to protect the economy of the sovereign debt crisis, the Government sought to increase revenue to reduce the third budget of the euro area deficit cutting official unemployment of 21%. "We are at the top of the European ranking in terms of the underground economy, just behind the neck of the neck with the Italy and the Greece,"Jose Maria Mollinedo, Secretary General of tax inspectors union Gestha, said in a telephone interview.Gestha considers the undeclared earnings amounted to 82 billion euros ($121 billion) per year and the narrowing of the underground economy of 10 percentage points in proportion to GDP would raise € 13 billion in social security contributions. 500-Euro BillsOverallthe underground economy is a value of 23 per cent of GDP, according to Gestha. Funcas, the arm of research of the Spain savings bank association, puts the number at about 17 percent and says that there are approximately 4 million undeclared jobs. Friedrich Schneider, Professor at the University of Linz, Austria, which the underground activity studies, believes the underground economy of Spain to 19 percent of GDP last year, compared to 25 per cent in Greece and 22 percent in Italy.Spain is home to 18% of the Bills of 500 euro for the euro areawhich are usually used for non-registered, although cash transactions that the Spanish economy represents 12% of the region of production, according to data from the Bank of Spain and European Central Bank.Official UnemploymentToday measures aimed at trimming the official unemployment ratewhich rose to 21.3% in the first quarter, the National Institute of statistics, said today, compared to 20.3 per cent in the previous three months. Although unemployment in Spain at the head of the EU, the rate of defaults on mortgages is 2.5%, which suggests that unemployment with informal income benefits, are complete the households Mollinedo said. "The underground economy is a system of survival both for workers and businesses, said Jose Manuel Saiz, Professor at the school of commerce Nebrija and contributing author"Ethics and legality in business", focusing on the underground economy.Informal jobs will only be converted into formal employment "If the company can pay", Saiz said, warning that the program can "choke small businesses that remain just".The plan may also not go far enough because it tackles one aspect of the underground economy and address is not the source of the unregistered money that companies use to pay informal workers, said Javier Díaz-Giménez, a professor at IESE business school in Madrid and Advisor to the former Government."Employers pay a salary of 2,000 euros per month must also contribute more than 500 euros in payments of social security, the National Statistics Institute show data"."If you are seriously underground economy you need a great plan that includes not only the labour market, but a comprehensive approach to the black market," he said in a telephone interview. "Everything is sparse, half-baked.".Tax FraudThe Government was also tackling tax evasion since 2005, followed by payments made with 500 euro notes, tighten control on bank transactions and investigate fraudulent property structures in enterprises. The campaign against tax fraud raised 10 billion euros last year, or 1% of the GDP last year, the Ministry of finance said on February 10.Gomez, the Minister of labour, said yesterday the new plan will not include a "" amnesty""even as he has said the objective "was more in the future than the past." "" "The general idea is so much looking at what companies have done in the past, but in helping them to find employment,"he said in an interview on broadcaster RTVE yesterday."

-With the help of Ainhoa Goyeneche in Madrid and Jana Randow, in Frankfurt, editor in Chief: Andrew Davis, Jeffrey Donovan

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net.

To contact the editor responsible for this story: Craig cstirling1@bloomberg.net Stirling.

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