Sunday, October 24, 2010

More coffin nails for the Spanish economy?

Spain has always been a long way behind when it comes to making efforts to ban smoking from public places. When I first started to live here I was amazed to find bank tellers and government officials smoking while they attended you. I was outraged when I went to register the birth of my first child and found the Registro office so smoky that my 2 week old baby had to be kept out in the corridor while we attended to the paperwork. A year or two later when I helped set up a play centre in the local town, I had to accept that smoking would be allowed in the café or “no one would come”. But it seems this is about to change and Spain is about to get some of the toughest anti-smoking laws in Europe.

After a botched and watered down attempt at a ban on smoking in bars and other public places a couple of years ago, this new “antitabaco” law looks like the real deal. The new law would, from 2nd January 2011, ban smoking in all bars, restaurants and other enclosed public spaces with very few exceptions. Also some outdoor places like the grounds of health centres and playgrounds are included in the ban. Terraces attached to bars which are not enclosed by three or more walls will be exempt. There are exceptions for some private clubs and certain proportions of space in hotels and prisons.

Another victory for health campaigners then and, despite not being militantly anti-smoking myself, I think on balance these kinds of laws quickly become accepted as the norm and the vast majority of people – smokers included – find them an improvement after a short time. The issue though is less about smokers’ rights and more about the effects on business, specifically the large and vitally important catering and hospitality industry which has been lobbying against the ban. Some people also think tax revenues from cigarette sales will hit the government’s finances and tobacconists are expected to suffer.

"The new law enrages barowners "

There could be something in these economic warnings. The Spanish economy and the government’s finances are in a precarious enough state and the UK’s experience that banning smoking, however desirable public health grounds, has had a negative effect on takings at some types of premises. I haven’t heard restaurants or hotels complaining about the smoking ban but pubs and clubs have certainly seen revenues decline over recent years. Not all their woes can be blamed on the new legislation: social trends which go back decades have left traditional pubs and places like working men’s clubs and bingo halls losing market share. The recession has taken its toll. We have been drinking less and less beer as a country for years. And there is more competition, including websites and the lottery in the case of bingo and supermarkets in the case of pubs. Some pubs, like the Wetherspoons chain, have taken on the decline and changed their offerings to, for example, capture the breakfast and coffee crowds.

What does all that mean for Spain? I think the effects could be quite significant. The small café and bar is a staple of Spanish life as, sadly, is unabashed smoking in front of other people. I can see the firm ban hitting business and shutting some of the weaker establishments. This is not a justification for putting off doing something that could save lives and set a better example for children but it’s one more reason to think 2011 won’t see any kind of rapid turnaround in the Spanish economy.


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Sunday, October 17, 2010

Is there such a thing as an autonomo free lunch?

Going self-employed in Spain - "autonomo" in the local parlance - has many attractions for foreigners living here, not least of which is that good paying contracted jobs are in short supply, particularly for foreigners without much Spanish. Many foreigners in Spain run their own business, er, "informally" without registering or paying any tax but would prefer to be legal either because they fear investigation and prosecution or because of the limitations of working in the black economy e.g. not being the equivalent of "VAT registered" and being able to issue proper invoices or not being able to sign a lease, take a loan or employ people.

That all points to registration and formalising your business but many people are put off by the taxes and social security. Without going into massive detail (there is a guide on the firm's website which covers all of this - Autonomo Guide) the main sticking point is social security for most people. It is a minimum of 251€ per month and can be more if certain unemployment, sickness insurances are taken in addition to the basic cover. Even if you don't make a profit (or make losses) this monthly payment never goes down, although younger autonomos can get a 30% discount for their first 15 months registered.

The "solution" if you want to register as autonomo but don't fancy this hefty outlay is sometimes touted as opting out due to low earnings. Spain has a national minimum wage and theoretically autonomos who earn less than it can apply to opt out of social security. But there are conditions which make it only applicable to a minority.

- you must always earn under the minimum wage so anyone earning irregular amounts which sometimes exceed the minimum could not apply

- you must be working occasionally - if you are doing a regular contract or regular work you cannot apply

- you cannot have a permanent place of business

This is why the bulk of people continue to have to pay social security if they are self-employed in Spain. Besides unless you pay into the system you cannot apply for the benefits, mainly health and pensions related which could ultimately be worth hundreds of thousands of euros (see article Spanish pension benefits )

Saturday, October 9, 2010

When will the Spanish pensions system collapse?

You might notice my deliberate and provocative use of the word "when" in the title rather than "might" or "if". I have just been doing an article for my website about Spanish pensions ("Spanish Pension Benefits") and was shocked by some of the figures I found during my research.

The article talks about how much someone in Spain can expect to get by way of a state pension, the answer being somewhere between 340€ a month up to nearly 3.000€ a month if you have made the maximum contributions. The majority will I guess be retiring on something between the minimum and double that, and bear in mind that in Spain you get 14 monthly payments (double at Christmas and Summer holiday time which is a nice system I think.

Not overly generous then but as everyone knows there is a pensions timebomb ticking in every developed country due to population ageing. Spain's ageing profile was what really surprised me and it is this and not the generosity of the payments that will sink the system. These are some UN figures comparing the ratio of working age Spaniards with oldies in 2050 with the ratio at the turn of the century:


Spain Working age (15-65) 27 million

Spain retirement age (65+) 7 million

Spain ratio - 4 workers to every pensioner


Spain Working age (15-65) 16 million

Spain retirement age (65+) 12 million

Spain ratio - 1.4 workers to every pensioner

(source UN Ageing Report

So, Spain has an 11% public sector deficit now ( ie is borrowing to pay current pensions) and that is barely 10 years into this dramatic demographic shift. It seems inconceivable that Spain will be able to finance state pensions with 11 million fewer workers and 5 million more pensioners. It just can't happen. So what will happen?

A big shift towards encouraging rather than deterring immigration? That may partially happen but the problem is rich countries tend to attract the poor and unskilled who may not exactly be an unmitigated economic boon.

Cuts in benefits and later higher retirement ages? For sure and these are being talked about at the moment with a report from 100 economists suggesting reforms along these lines ( but the reforms seem quite timid, with a rise of only 2 years in the retirement age and an increase of 5 years in the number of years' contributions required to get the maximum pension (it is now 35). Hardly enough to rescue the system you would have thought.

Essentially the government is making promises it cannot keep and cannot renege on explicitly for fear of a political backlash. The outcome will eventually be a default on its pensions promises by stealth - pensioners will get the nominal pension they have paid for but the government will borrow and print the money to pay for it so inflation erodes its effective value. At some point in the next couple of decades 70s style inflation will wipe out much of the real value of state pensions.

Other recent articles: Spanish non resident tax

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