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.
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.
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.
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Nick Corbishley 