Spanish Insight

Spain cuts spending - where the axe will fall

2012-01-15T01:47:00.000-08:00

Last week I wrote about some tax rises that are in the pipeline for Spanish property owners (Spanish property owners face a double tax shock) and our main website now carries an article describing the 2012 tax rises for Spanish residents.

The plan is to raise some €6 billion in new taxes to reduce the deficit which has risen to 8% of GDP versus a target this year of 6%. However the new government is also taking an axe to public spending pencilling in nearly €9 billion of savings.

Here is the breakdown of the savings being sought:

Development €1.6 billon
Industry €1 billion
Economy €1.1 billion
Foreign Affairs €1 billion
Education €485 million
Employment €435 million
Finance €432 million
Health €409 million
Agriculture €400 million
Defence €340 million
Interior Ministry €163 million
Justice €40 million

Local authorities are having their funding cut by more than €1 billion and there are €600 million in cuts planned from the Research and Development budget.

From the perspective of day to day living in Spain I would guess that the Health and Education (if you have got kids) cuts are the most worrying as these are normally areas which need increases and cuts may have a very noticeable impact.

Public sector workers are going to get a pay freeze, a hiring ban and a longer working week (up from 35 to 37.5 hours) so expect lots of strikes.

Spanish property owners face a double tax shock

2012-01-08T12:08:00.000-08:00

In among a welter of new taxes that have been introduced by the new conservative-led Spanish government, are a couple which will hit foreign owners of Spanish property:

(1) The non resident tax rate is set to rise to 24.75% from the current 24% level. That doesn't sound much but it comes on top of the reintroduction of the wealth tax and a big crackdown on holiday home owners who neglect to pay their taxes (see our guide What to do if you get a letter from the Spanish tax office)

(2) IBI or local property taxes are also set to rise across the country by an average of €30 for each of the next two years as the government seeks to let local councils raise about another €1 billion in taxes. It is supposed to be a temporary measure.

Older properties that haven't been revalued for 10 years will be the worst hit as the tax will go up 10%

If you want to see whether you will get off lightly or suffer then take a look at your last IBI bill and look for the "ano rev" or year of revaluation - if it is 2002 or prior it will be a 10% rise, 2002-6 6%, 2009 or later 4%. Properties revalued between 2007-8 will see no increase as they were the peak property bubble years and the properties are overvalued any way.

How to find films showing in English in Spain

2012-01-01T08:05:00.000-08:00

I am sure most people living in Spain who like the cinema have their own way of finding out what’s on where. But I found it very awkward at first to get any accurate information, even with some resolute Googling.

I was getting general information about VO films or the cinemas that sometimes show English language films but not the specifics. Even when I did get to some listings they were usually out of date.

The solution is a site called Entradas.com which I have found to be up to date, comprehensive and reliable.

To get the information about English language films go to the site and select your province. You can change the language to English if you want. Crucially you need to then go to the “Cine” button and select “Cartelera VO” from the list.

This will give the full list of "version original" listings in your province. Obviously if the film was originally in English this will be the spoken language of the film with Spanish subtitles for the locals (the acronym VOSE denotes version original with Spanish subtitles).

I took the kids to the cinema this Christmas and there was only one VO film showing which didn't interest them so we ended up seeing a Chipmunks film dubbed into Spanish. It was surprisingly easy to follow although hardly a complex plot to challenge my dodgy Spanish.

From our website: What to do if you get a letter from the Spanish tax office

Spanish tax office delivers 300,000 nasty letters

2011-12-22T22:50:00.000-08:00

The Spanish tax office began sending out letters headed “comunicacion” to foreign property owners a couple of months ago. They have been causing a lot of concern to people who don’t understand what they say (they are in Spanish) or do understand but are worried by the implications.

To explain briefly to anyone who hasn’t come across this issue yet, these letters are notifications from Spain’s equivalent of the Revenue (Agencia Tributaria). In essence they are saying that they know the recipient owns a property but have not received tax returns from them. They are not tax demands as such and do not require a response but they do suggest further action will be taken if the property owner receiving the letter really does have tax returns due.

It has been quoted that 300,000 letters have been sent out.

I won’t go into detail about the matter as there is already some information about them out in the blogosphere and I have posted a detailed Question and Answer guide on our main website:

What to do if you have received a letter from the Spanish Tax Office

I would like to clear up a couple of specific points which I haven’t read about elsewhere –

The letter claims that help will be available at your local branch of the Agencia Tributaria (Google your nearest). I don’t know how true that will be in practice but it does open up the possibility of being able to resolve the situation without recourse to a professional i.e. paying a lawyer or accountant to catch up your taxes for you.

If you want to take a DIY approach to the problem, firstly read up on the tax (our website has several articles on non resident tax – see the Advice page and use the drop down box). The visit the tax office with all your documentation and see what they have to say.

Also you might wonder why the letter is asking for tax returns from 2007-2010. There is a technical reason for this – the equivalent of a statute of limitations which prevents the tax office collecting unpaid taxes four years after they were due. For example 2006 resident taxes were due by 30 June 2007 i.e. more than 4 years ago so not collectable.

They didn’t ask for 2011 returns because they are not yet due. 2011 resident returns are due next June and non resident returns next December.

Would you prefer to live in an Indian slum or Middlesbrough?

2011-12-15T22:55:00.000-08:00

This article on Sky News caught my eye. Anyone who has seen “Slumdog Millionaire” or one of countless documentaries about India’s slums will be amazed that shacks in Mumbai’s Dharavi slums are changing hands for upwards of £50,000.

My first flat in London (Hampstead 1994) didn’t cost that much more than 50k and my first flat in Spain (Valencia 1999) cost considerably less. Even now a quick search reveals over 600 properties in and around Middlesbrough for £50,000 or less.

What’s going on? Aren’t Indian slum dwellers among the poorest and most wretched people in the world? Didn’t I see kids in the movie swimming in human excrement? Less of that sort of thing in Boro than there used to be.

The Sky article gave part of the answer to the riddle of the pricey shacks: the slums are not quite the ramshackle hellholes that you might think. The Dharavi slum is a highly organized, functioning community with thriving businesses and properties that have housed the same families for generations. Over time the authorities have recognized their legitimacy and hooked up utilities. Most of all it is very close to the commercial heart of Mumbai (“location, location, location”).

But nevertheless India is a poor country despite rapid growth recently. How can people afford to bid up slum dwellings to such levels? The average wage is so low that Reebok recently announced that it was planning to sell a pair of trainers for $1 to get into the market. That does not suggest that India’s boom has yet created enough spending power to justify slum dwellings at UK prices.

The real explanation may lie in recent Indian interest policy. Rates have been as low as 3% and even now, with inflation needing to be reined in, Indian interest rates are only 7%. As is usually the case with these amazing property price stories, the root cause is lax monetary policy. We in Britain have seen such house price booms so many times before; they make everyone from the Finance Minister to the shack owner feel like they are economic geniuses until they end, as they always do, in tears and a painful bust.

Euro doubters are being proved doubly right

2011-12-08T12:12:00.000-08:00

It seems absurd now but a decade or so the UK was very close to joining the Euro. Tony Blair’s Labour government, popular and trusted (yes, it was a long time ago), was pushing for it and only some stubborn resistance from Gordon Brown kept Britain out.

One of the key “pro” arguments was that interest rates would be lower. The pro camp was obviously hoping to sell the Euro with a bribe of lower mortgage rates. I remember thinking at the time that this was a hollow and short-sighted argument.

Lower interest rates are not a good thing necessarily. Interest rates need to be high enough to balance saving and spending. Set too low and the risk is of unsustainable booms and horrible busts.

The euro-sceptics pointed out that a single interest rate for Europe would be bound to leave some parts too high or too low rates with nasty consequences. Events have proved the doubters right of course but there is more to the story.

The arguments against joining were not wholly economic. Indeed the dangerous economic consequences of joining were a side issue for most opponents who feared the political logic more: the Euro was an irrevocable step towards a European superstate which rendered national governments almost powerless on the things that matter.

Pro-Euro campaigners either played down the loss of sovereignty as scare-mongering or argued that it would be a good trade off – slough off your little-Britain hang ups and reap the economic benefits, they said.

Now the Eurozone threatens implosion that position looks ridiculous: all 17 members face the prospect of ruin and disaster unless they join together in a fiscal union. Exactly what the Euro’s opponents predicted and the Euro-enthusiasts perhaps secretly hoped for.

What will this Eurozone superstate look like, if indeed it gets off the ground? Again you don’t need a crystal ball to see the shape of things to come. It will be hugely wasteful of public money, highly bureaucratic, damaging to business and most of all grossly undemocratic.

The citizens of the Eurozone must already feel like they are helpless onlookers watching their political elites flounder in the crisis that they themselves created. They can now look forward to permanent Euro hell as the price for preventing economic meltdown.

From our website: A guide to Spain's autonomo system

Spain tax form 210 deadline nears

2011-11-24T22:53:00.000-08:00

Where did 2011 go? It was just a few weeks ago since I was enjoying a late Autumn swim in the Med and now we are hurtling towards Christmas. One consequence is that end of year deadline for Spanish non resident tax declarations is also approaching rapidly. This is the tax that all Spanish holiday home owners are supposed to pay.

I have written about this Spanish tax, often called modelo or form 210 tax after the forms you have to submit, many times so I will link to rather than bore you with the details: Spanish tax form 210

You have until 31.12.11 to get the form in. We offer a service where we do it for the taxpayer but this is only available up to the end of November.

I have had a few clients recently who have received letters from the Agencia Tributaria (Spanish tax office) asking to see tax returns going back to 2007 so they do check up. They have access to both local tax records and utility company computer systems so they know who has property in Spain and can cross-check to the returns they have received.

Is there any point to the Spanish Elections?

2011-11-17T13:51:00.000-08:00

Spain goes to the polls on Sunday to elect a new government and, yes, my question is facetious. Of course the elections are not pointless; no democratic election ever is. Apart from anything the people will get their chance to pass judgment on the record of Prime Minister Zapatero and his Socialists. Polls point to a big thumbs down and the election of the PP and their leader Mariano Rajoy who has tried and failed to win twice before.

But will it make much difference whatever happens? Spain is so close to the eye of the Eurozone storm that any new government will be powerless against the combined forces of the bond markets and the Eurozone. The PP are talking tough about bank reforms (which will surely send Spanish property prices down further – How the bailout could send Spanish property crashing) and labour market reform but it will be Germany and the ECB that decides Spain’s fate.

Look at the way that Berlusconi was finally forced from power. The Italians are well rid of him but it took Eurozone threats to do the job. It is notable that the new Italian government contains not a single elected minister.

Over in Greece the call for a referendum to get popular support for austerity measures was taken as a “breach of trust” by France and Germany; Papandreou was kicked out and Greece was effectively blackmailed into cancelling the vote.

I don’t subscribe to the theory that the Southern European countries are being drawn into a German super state but they certainly have lost control of their destiny. Either Spain and the others will be rescued by Germany or it will be forced to crash out of the Euro. It’s that simple and Sunday’s vote will not change a thing.

Latest article: Spanish holiday property UK and Spain tax considerations

The taxman wants some of your Spanish rental income

2011-11-11T11:51:00.000-08:00

If you live in Britain but own a home abroad which you rent out you can’t fail to have seen the recent headlines like this one:

Taxman pursues Britons hiding holiday rent on overseas homes

Apparently the Revenue have set up a special unit to go after “the rich” (defined as those paying 50% tax i.e. earning over £150,000 pa) and one of their tasks is to recover £560 million in unpaid tax on foreign rental income.

With the stern promise that there is “no hiding place for tax cheats” they will look at things like land registers and letting adverts to catch people earning income from their properties but not declaring it.

I don’t know how worried I would be if I was renting out my holiday home and hadn’t declared the tax. These kind of campaigns have been launched before and you sometimes get the impression its more about the publicity and scary newspaper headlines than anything of real substance.

It also wasn’t abundantly clear whether the campaign is purely about the holiday homes of “the rich” or whether it is anyone with a holiday home that is under threat.

By coincidence I got a reminder of how brutal the Spanish taxman can be when it comes to foreigners (and locals to be fair) when it comes to undeclared rental income. I got an email from someone asking what they could do about €6,000 that the Spanish tax office (la Agencia Tributaria) had taken from his bank account, with no warning or even a letter to say they had done it.

It turned out he had two holiday homes and he let out one through an agency for several years without declaring a cent for tax purposes, not even completing the non resident tax return which surely every Spanish property owner knows about by now (if you don't see this post 'Tis the Season to Pay Spanish Taxes).

We have to assume that the rental agency were asked for their records by the hungry Spanish tax wolves. I have some sympathy for the guy but then again a lot of people do things properly and pay their taxes, so why should the non-payers get away with it?

If you want to be one of those who declare their income then here is a link to an article on our main website which explains what to do:

UK and Spanish tax implications of renting out a holiday home in Spain

The Greek bail-out could send Spanish property crashing

2011-11-03T23:33:00.000-07:00

Last week’s Eurozone bail-out involved some debt relief for Greece, more firepower for the EFSF (the bailout fund for other crisis countries) and a bank recapitalisation plan. Quite apart from the fact that most market observers think the plan is flawed and inadequate, the last bit that should have Spanish property owners worried.

In theory, topping up the capital buffers of the banks, particularly Spanish ones which are among Europe’s weakest, should be a positive development. The banks will be safer in the event of a new crisis and there should be less fear in the interbank market, a key feature of the original “credit crunch”.

There are two ways for a bank to boost its capital adequacy ratio: raising more capital or slimming down in size to make its existing capital look proportionally bigger.

Investors are rightly suspicious of banks so raising fresh capital by selling shares is not going to be easy. Higher capital ratios themselves imply lower profitability for the banks, making it harder for them to raise capital.

Perversely Government and EU officials are making it even harder for the banks to raise capital by demanding that they pay less in dividends and pull out of certain areas of business. The proposed financial transaction tax is also depressing bank share prices.

So banks are more likely to choose to go on a diet – desperately reduce in size to meet the new adequacy ratios without raising more capital. But how do banks reduce in size? There are a few ways, all of which are negative for growth and asset prices. They can sell non-core businesses like insurance or overseas subsidiaries. They can reduce the size of their loan portfolios by slashing the amounts they are willing to lend to households and businesses. They can also sell off other assets like the properties they have repossessed.

This is what Santander intends to do according to this article in the FT: Santander seeks to offload €3bn of Spanish property If all the Spanish lenders do the same then there will be a flood of new property on the market at knock-down prices. At the same banks will be trying to cut down on lending to businesses and homebuyers.

Throw in further austerity measures by the government and falling demand in most export markets and it’s hard to feel optimistic about the Spanish economy right now.

The quiet revolution in internet search

2011-10-26T22:39:00.000-07:00

I saw a survey recently proclaiming the popularity of search engines - "92% of internet users search", it said, beating email into second place as the most common online activity. The only surprise is the 8% of people who go online and somehow avoid using search at all. How is that possible?

For the rest of us search engines have been a constant part of our lives online right from the start, helping us make sense of the deluge of data that would otherwise be impenetrable and bewildering.

Search (which means Google for 2/3 people). Type in a term, hit return and within a few nanoseconds get thousands of suggested links with the most promising at the top of the first page of results. Apart from a few superficial changes (no longer needing to hit return) nothing much has changed except that, under the hood, everything has. Many times and, some say, with profound implications.

Google is constantly evolving the algorithms which drive the ranking of results. When I was trying to get a high ranking for our website a couple of years ago, links to the site from other websites, particularly those anchored in the search term, were said to be the key. Now these links can result in your site being banished to the "also ran" pages as Google suspects you are trying to game the system.

Some of the factors that are said to improve your rankings were barely on the radar two years ago:

Social factors - the rising influence of Facebook and Twitter with "shares" on Facebook being given particular weight

Speed of the website

Penalties for low quality content (e.g. content farms)

The growing importance of location particularly in mobile search

Use of Google's own data from searches, sites favourited (or blocked), paid search etc

More sophisticated assessment of quality of page's content, structure, layout

The key messages I got reviewing the latest trends are that it is getting harder for site-owners to game the system and it is better to focus on quality content, constantly improving the usefulness of your site and trust that Google will find it. Some kind of social media strategy would appear to be a must though.

And what of personalised search: results tailored and filtered to reflect your preferences, location, search history etc? Google says it is personalising results to make them more useful but some people fear that its getting too Big Brotherish and may result in users getting a distorted view of the internet that filters out important material such as political views that your own. If you are worried about Big Google watching you then maybe try logging out of your Google account while searching.

From our website this week: Will I get caught not declaring Spanish tax

Now IS the time for a referendum on Europe

2011-10-20T12:21:00.000-07:00

Over 100,000 signatures collected by volunteer groups and some brave Conservative MPs have forced a vote in Parliament over UK membership of the EU. All the main party leaders are forcing their MPs to vote against a referendum. Strange bed-fellows Cameron and Miliband are effectively saying the same thing: now’s not the time.

They are wrong. It’s the perfect time for the British people to be given a say on the EU. After all they have not been consulted for over 35 years. They have never had the chance to say whether they want to be part of what the EU has grown into since those seemingly innocuous origins of six countries in a Common Market.

Since then, with barely a nod to democratic process, the EU has grown into a 27 state behemoth that reaches into every legislative area, slaps down our courts and parliament, dictates who we can let in to the country and claims to speak for us in the world.

It also soaks up enormous sums of money, a net £12 billion of which comes from the UK taxpayer. As we wrestle with a massive fiscal deficit, now is most definitely the time to consider whether we can afford to pay this massive subsidy to our neighbours and debate what we get in return.

Many other economic issues are tied up with the EU from the burden of regulation on industry to the effects of unchecked immigration and the impact of EU schemes to undermine the City. Far from a referendum being a distraction in a time of economic crisis, it may be a pre-requisite of recovery. We should at least be able to debate the arguments rather than remain permanently shackled to the Euro project which has never looked so tarnished and dysfunctional.

Some argue that the sovereign debt crisis should be given priority at the moment and that a referendum is an irrelevance we could do without. On the contrary, the Euro crisis is the most compelling reason for a debate on continued membership. For one thing it has undermined one of the principal claims of the Euro-enthusiasts: that Europe does things better and we would be better off inside the club.

Also, however the crisis is resolved, it is sure to presage enormous changes in the way the euro area and EU are run. We deserve to be consulted before the UK government has to decide how to respond to the crucial choices that are bound to result.

Fundamentally the Euro crisis has exposed the dearth of democratic legitimacy in the rotten core of Europe. The political elites have pushed the project along hard and fast ignoring popular doubts and look what a mess has resulted. Just think of how the German electorate must think about their politicians’ promises about no bail outs and pooled debt.

With the sole exception of the Euro and one or two opt-outs, UK governments have gone along with the lot and have never put the issues to the people. Now is the time to remove that stain on our democratic heritage and have a referendum on this vital topic.

If you feel the same way you can make your voice heard (in a small way!) by signing the People's Pledge here.

On our website this week Spain is bringing back the wealth tax

10 reasons why stimulus is the problem not the solution

2011-10-12T22:50:00.000-07:00

Last week I wrote that calls for more economic stimulus should be rejected because such measures demonstrably make things worse rather than deliver the boost they are supposed to. I listed 13 separate fiscal or monetary efforts made to stimulate the US economy since 1993 which have left it in a worse state than any time since the War.

Other countries which have run even bigger government deficits and run easy money policies for longer, like Greece and Japan, are in an even worse state.

Despite this dismal record policymakers (most recently the Bank of England with its QE3 programme) persist on trying to shove stimulus down our throats. Few commentators ever seem to question whether these “boosts” actually do more harm than good.

So, in no particular order, here are ten reasons why I think unfunded public spending, super-low interest rates and money printing are economically damaging and preventing recovery:

Sugar rush - stimulus only creates a temporary boost to demand at the cost of storing up demand-destroying effects for the future. One reason why most countries are suffering marked slow-downs now is that the effects of the 2008/9 stimulus packages have worn off.

Prolonging the agony – these false demand rushes do not just benefit healthy parts of the economy, they allow unhealthy, over-indebted and unsustainable parts to limp on: zombie banks, companies and, dare I say it, consumers.

Bad habits die hard – if you look at the way stimulus is supposed to work, it is in ways that are completely contrary to the long term interests of the countries being “helped”: encouraging consumption rather than investment; more borrowing rather than savings. Bank of England policy has been likened to “war on savers” which is just about the last thing the UK needs with a pensions timebomb ticking.

So now Inflation's a good thing? – the monetary authorities are expressly trying to create inflation with their policies and seem to be quite pleased with themselves when they create it. I am less sanguine. The BoE reckoned its first bout of QE generated up to 2% extra inflation. One reason why private sector demand is so depressed this year is high fuel prices which have been particularly affecting retailers. A lot of government spending is indexed to inflation so it makes the deficit reduction harder. Contrary to commonly stated opinion, high inflation doesn’t automatically erode debt. It may do this if wages rise faster than general prices but this has not been the case in recent years.

Leakage – A lot of the demand supposedly created by these stimulus measures leaks abroad in the form of increased imports or by encouraging investment capital to flee to emerging markets in search of better returns. The Chinese bubble that may be about to burst was made in Washington.

Moral hazard – The financial sector knows that every time the markets weaken, the fiscal and monetary taps will be turned on and they will be rescued. This has been done so many times - the term that describes the phenomenon, the Greenspan Put, was coined as long ago as 1987 – that the financial sector has a strong incentive to take ever greater risks because the downside is so limited. Stimulus is one of the main reasons for the “too big to fail” phenomenon.

Confidence trick – QE, fiscal stimulus and lower interest rates are all supposed to encourage business investment, which creates jobs and thus more consumer spending and thus more investment in a virtuous cycle. But if you were in charge of a business, would stimulus policy incentivise you to invest for the long term? Maybe a decade or so go but these kinds of measures have been tried and have failed so many times now that they are counterproductive and cause cynicism and confusion in the business community.

Bucking the market – True free-market believers are a dying breed these days. How else do you explain the lack of criticism, even from supposedly right wing politicians, for probably the biggest and most damaging example of state interference there is - central banks holding down interest rates below their market level. Interest rates are a price mechanism like any other: if you set the price of credit too low you will upset the delicate balance between saving and investing, investment now and consumption later. See this article to understand the theory of intertemporal misallocation which explains a lot of the current crisis: What Spanish Pigs Can Tell Us About Economics

Pensions vandalism – One common aim of stimulus measures of the QE variety is to lower bond yields which also has some nasty side effects for pension funds and retirees buying annuities. Is it really going to help our companies to have to increase the contributions to their pension funds? Will it help demand to impoverish pensioners? See this article from the telegraph There’s Another Fine Mess QE Has Got Us Into

Big Spenders – if you believe that governments spend (and then tax and borrow) too much, then take a look at stimulus as one of the main reasons for this. Look at Spain where low interest rates over-stimulated the economy, falsely inflating GDP and tax revenues thus encouraging the government to spend too much. And when the stimulus wears off, governments have a great excuse to spend and borrow even more to “support” the economy. One Nobel prize-winning idiot even claimed that an imaginary war against aliens would be a good thing because it would encourage the US government to spend even more trillions it didn’t have – Paul Krugman: An Alien Invasion Could Fix the Economy

OK, so this is a mish-mash of ideas and I haven't tried to distinguish between the different types of stimulus. Maybe different countries which might benefit from certain measures at particular times. But in general I believe that governments would be better to concentrate on balancing their budgets, cutting taxes and regulation and leave the economy, including interest rates, to the markets.

From our website: guide to Spain's Autonomo (self employed) system

It's a case of Good News, Bad News for Spain

2011-10-04T22:38:00.000-07:00

Mixed headlines about the Spanish economy this week as the tourist sector delivers the goods, but unemployment continues to rise to an agonising 4.2 millions.

New figures reveal that Spain's travel sector experienced a very good Summer season. Visitor numbers hit a record high of 7.64 millions in August (up 9.4% on the previous year).

A separate survey showed Spain remains the number 1 choice in Britain (Spain's top market) for family holidays. Some have speculated that the Arab Spring and rising flight costs have caused some Europeans to choose Spain over more exotic and far-flung destinations.

Great news for the economy as tourism is Spain's biggest industry and employer. It is also the main source of export income which injects foreign demand into the stagnant domestic economy.

That's the good news. The bad news came from unemployment stats showing a net increase of 95,000 on the unemployment rolls to record another new high of 21%. The two bits of news are probably connected as tourist jobs are inevitably seasonal and some will have already been laid off last month.

Another component of the jobs woe however is more worrying. Reports say that there were heavy job losses in the public sector as local government in particular sheds employees. Teachers are being laid off for example and are going on strike in some areas.

Many local authorities which profited from high property-related taxes in the boom (and spent accordingly) are now deep in debt and some are not settling their bills and being taken to court by contractors such as rubbish collectors and cleaners.pp

It's all a reminder that austerity isn't painless and that, although Spain has made decent progress in getting the deficit under control, that very process may deepen the economic crisis.

From the website: Changes to Spanish Tax Form 210

Is Ryanair's latest move so bad?

2011-09-30T11:30:00.000-07:00

Ryanair and its boss, the charming Michael O'Leary (left), are hardly ever out of the news. Recently its their debit and credit card charges that have been in the news.

I posted about about ways to avoid Ryanair's card charges but it seems the goalposts have moved and now you can only avoid the £6 each way charge (per passenger) by using a Ryanair prepaid debit card.

These have to be charged up prior to use and there is a monthly £2 charge on them if they are not used. Well worth getting though if you book Ryanair a lot like me. The full story if you missed it is here:

Ryanair launches own card

Much of the press was negative focusing on the £2 charge and the fact that everyone who got one of the cards that previously avoided the charge is now left high and dry. One article talked about "fury" and another "hefty" fees.

But is this fair? Lots of other sites and not just airlines charge fees for card use and by getting this free card you can avoid them on ryanair.com. The monthly charge can easily be avoided by occasional use and they are free to load up with money.

I ordered one and it was all very straightforward except that ironically enough there was a hidden "card purchase fee" of £6 added to the bill.

There is a strong antipathy toward the airline. The internet is full of "hate ryanair" groups and "ryanair evil" blogs. I liked the Facebook group where someone was so incensed they said "they should have all of their planes' tires slashed". Slightly odd thing to hope for.

I have had my run ins with them but they have done more than anyone else to make air travel cheap and their money-making schemes often work in the customers' favour - like online check in. Give them a break?

Stimulus is the problem not the solution

2011-09-18T22:53:00.000-07:00

As the world's main economies slow, and in some cases grind to a halt, the calls for governments and Central Banks to stimulate their economies are growing louder and they are starting to respond.

With interest rates already on the floor (in the West at least) and public finances dangerously stretched, it is not clear how governments and central banks can provide much of a lift. But even if they could, isn't it time we accepted that there are limitations to what fiscal and monetary stimulus can achieve?

The idea is very simple: extra government spending, tax cuts, lower mortgage rates and quantitative easing (money printing) all are supposed to create fresh demand in the economy and set off second round effects as companies hire and invest to meet the new demand.

But if that's the cure, why are the patients who have been prescribed it (many times) still stuck in hospital with doctors anxiously looking at the graphs zigzagging downwards at the end of their beds?

Never has a "solution" been tried and failed so often as stimulus. Just looking at the American experience alone we have had, and it's worth listing them, multiple attempts to pep up the economy during the last two decades:

1993 : response to the recession that followed the Gulf War oil price spike

1997: response to the Asian currency crisis

1998: monetary easing following Russian crisis and consequent LTCM hedge fund collapse

1999: open market operations to inject liquidity ahead of anticipated Y2K bug problems

2001-3: Fed funds rate cut multiple times to 1%

2001: Economic Growth Act - Bush tax cuts

2001 (end): Fed injects $100bn of credit post 9/11

2007/8: Fed funds rate cut to effectively 0%

2008: Bush stimulus package

2008/9: QE $1.1tn

2009: Obama stimulus

2010/11: QE2 $600bn

2011: Operation Twist and 2 year guarantee on Fed funds rate

2011: American Jobs Act 447bn stimulus package

Every one of these policies was expressly designed to stimulate the economy and was reported (uncritically for the most part) in the press as a "boost" or as "aid". And every one had a future price in terms of higher debts, either public or private.

After all that boosting the economy should be soaring but as we all know the US, Japan, Europe and the UK are stuck in the mire with massive debts, barely any growth, shockingly high unemployment and banks teetering on the brink.

I will write next time on why I think stimulus does more harm than good but will sign off with some stats from the crisis before this one: going back to 2002 after the dot com bust. The year the Fed stoked up a consumer credit binge and private sector credit grew at an annual rate of $695 billion. A massive debt increase that sowed the seeds of the next downturn and under which the US is still languishing. And what did that buy? GDP growth of $110 billion. Every $6 debt produced a measly $1 of growth. The debts are still with us but the growth long gone.

From our website: Spain autonomo classifications

moral hazard

Zapatero's parting shot at the rich

2011-09-18T22:38:00.000-07:00

At the end of last month I posted about the possibility of Spain's socialist government reintroducing the wealth tax ("Spain targets the rich"). At the time the move was just "under discussion" and some press reports categorically stated that it wouldn't happen. But unfortunately those reports were wrong and it is on the way back, with big implications for property owners.

The Zapatero government announced the return of the wealth tax on Friday. It's a tax on assets including property, investments, cash, cars etc completely separate and on top of income tax. Fortunately the government has reintroduced the extra tax with a big threshold (700,000€) that make it payable mainly by the very rich only. In addition there is a 300,000€ allowance versus your own home. The rate will be 0,2-0,25%.

As my original post showed the main losers could be foreigners who own holiday homes in Spain. They already pay, or should do, non residents income tax (see our article Spanish taxes for non residents) and this could double or treble that liability. When the wealth tax previously was levied in Spain (2007) non residents could not claim exemptions or allowances and paid quite heavily. We will have to wait for the details this time.

The policy looks similar to Gordon Brown's 50% tax rate. There is an election due this November and the Zapatero government may simply be playing a political game. They know that the opposition PP will hate this tax and indeed some regions governed by the PP have said that they will not collect the tax. But like Brown, Zapatero will know that sympathy for the rich is in short supply and that PP's opposition to the tax will simply make them look like a party for the wealthy.

Can a tax cut breathe life into the Spanish property market?

2011-09-11T09:42:00.000-07:00

An emergency meeting of Spanish government ministers announced a cut in the rate of IVA (Spanish VAT) on new build houses from 8% to 4%. The tax had only been raised from 7% thirteen months ago. The abrupt change of policy is aimed at reviving the housing market.

Something certainly needs to be done if Spain is to start to grow its economy. Before the crash the construction sector accounted for more than 15% of economic output; now it seems to be dead on its feet. Recent figures showed Spanish construction activity fell 43% in the year to June, a steeper fall than anywhere else in Europe. Will the tax cut help?

The idea is that this will help banks and property developers offload a lot of the new build properties that have lain empty since the housing crash hit hard in 2008. Estimates vary but their could be up to a million empty and unsold units weighing down on the whole market. New building will remain depressed until the backlog is at least partly cleared.

4% is a chunky reduction - around €5-8,000 off the purchase price for an average property. The reduction is temporary - just until the end of the current year - which may have the effect of bringing forward some activity and creating some momentum.

But there are doubts - transfer tax on existing home sales remains at 7-8% (depending on the area). Furthermore house prices still appear high in relation to incomes; "stratospherically" so according to one economist who produced a graph showing that average prices are more than 6 times annual average incomes in Spain; much higher than the UK and US: Spanish house prices still high

Banks don't have much of an incentive to shift properties while they hold them on their books at cost; selling them at current market prices would crystalise their losses and actually make their balance sheets look worse.

The tax cut may be helpful to those with property deals in the pipeline but don't expect it to trigger a wider revival in the Spanish property market.

Related on our website:

Capital Gains Tax on Spanish Property Sales

Ten Reasons Spanish Property Prices Will Stay Depressed

Spain targets rich taxpayers

2011-08-30T22:26:00.000-07:00

Or does it? Spain's government was reported to be looking at ways of getting more tax from its wealthiest citizens last week. It's looking at ways of getting its budget deficit down to 6% this year. The inspiration is said to have come from France where a 3% tax surcharge was imposed on incomes over €500,000 recently.

One idea being mooted is a return of the wealth tax ("Patrimonio") abolished in 2008. This was an extra tax based on assets like investments and houses rather than income.

Because of reasonably generous tax allowances the tax didn't raise very much money - about €2.1 billion in its final year - and was quite an intrusive and inefficient tax. Its abolition was widely celebrated even though most of the wealth tax was paid by the very wealthy at the top of the pile.

One group that would be badly hit by a return of the wealth tax in its old form would be non resident property owners. Holiday home owners are already obliged to submit a tax return and pay income tax based on the rateable value of their house or apartment (see Spanish Tax Form 210 for details). Up until 2008 they also paid wealth tax which doubled or trebled their liability partly because they were not entitled to the same deductions as residents.

Hopefully it won't come to that. Spanish newspaper La Razon in an article entitled "The government parks taxes on high incomes" is pretty sure plans were discussed but then shelved due to differences of opinion within the governing PSOE. It categorically ruled out the return of the wealth tax or an increase in taxes on very high incomes (Spanish tax rates are already rising to 45% this year) although some other newspapers hedged their bets. Other articles this week have talked about the wealth tax returning but with a much higher threshold for paying it e.g. minimum assets of €600,000 or €1,000,000.

Spain slams the door on Romanian immigrants

2011-08-22T11:18:00.000-07:00

In a surprise move last week the EU said it would allow Spain to restrict the number of job-seeking immigrants from Romania. This is the first time any EU country has sought to keep out workers from another EU country since Europe introduced an open borders policy. This is hardly "Fortress Spain" - the nearly 900,000 Romanians already in the country will be unaffected and the restrictions will last only until 2012. Is Spain right to take this step? Should Britain follow?

The justification given for the move is that the number of Romanians "was distorting the labour market". Spain's unemployment rate is now 21% and its job market cannot supply enough jobs for locals never mind the 5 million foreigners in the country legally plus who knows how many illegally. Already 30% of the Romanians in Spain are unemployed.

Sounds like an open and shut case but there is more to it. During the boom years immigrants were welcomed with open arms by the construction and agricultural sectors particularly when they were doing jobs Spanish nationals were turning their noses up at. They were not exactly "stealing" Spanish jobs. Also there is more than a hint of scapegoating about the move. Spanish unemployment has always been high because of a dysfunctional system which discourages legal job creation and because of the disastrous consequences of joining the euro, not because immigrants came to make an honest living during the boom.

While I think it is a classic case of “too little too late” I think Spain is right to seek to limit the inflow of Romanian jobseekers. By all accounts the benefit system is very sketchy and ungenerous in Romania and wages for those in work very low. That explains why so many are prepared to travel throughout Europe in search of a better deal but it is hardly fair to local jobseekers in countries where jobs are scarce anyway. And Spain has no right to send back any surplus migrant workers so as their economy has soured they have been left with hundreds of thousands of foreigners on benefits at a time when they are under massive pressure to reduce state spending.

As for Britain similar questions have been asked for years about how this free movement of labour through the EU is supposed to work when some countries have much more generous welfare systems and more open labour markets than others. The result for the UK has been that almost all jobs created in the last decade have gone to foreigners, mainly Eastern Europeans, and there has been a massive strain on public services and housing.

But the answer isn’t to blame immigrants or necessarily to place limits on their numbers particularly when they are often taking up jobs that locals will not do. Root and branch reform of the benefits system should come first, particularly the areas that are most abused and reduce the willingness of people to work, like housing benefit and incapacity benefits.

From our website: Spanish non resident tax

How to ease the pain of rising energy prices

2011-08-15T22:30:00.000-07:00

The last few years have been very unkind financially to anyone with savings in building societies or bank deposits. With rates slashed to the 2-3% mark (before tax) the value of these savings has steadily declined as inflation has risen. This mix of rock bottom returns and high inflation is set to continue for years.

Worse for many people who rely on these savings has been the rising cost of energy - petrol prices and domestic fuel bills have risen much faster than inflation. What to do?

Ever helpful the big 6 energy suppliers have been offering fixed price deals which fix your tariffs for up to two years. A bit rich when they have just raised them 20% - "we're putting up your bills and would you like to lock into paying these rates for two years?". You would rue this if there is a recession and energy prices fall again even if just temporarily (and they have been falling recently).

A better option might be to buy shares in a couple of energy companies. An example would be Royal Dutch Shell B shares (RDSB:LSE). The share price has fallen recently below £20 (it has been as low as £17.68) at which levels the dividend yield is nearly 6% which could be received tax free if you open a self-select ISA. That yield is likely to grow in the coming years as Shell benefits from rising prices for oil and natural gas (which makes up half its output) and a growth program of investment in such areas as unconventional oil extraction and liquefied natural gas projects. The company's most recent set of results show profits up 74% with strong enough cashflow to support the dividend, finance the investment program and leave a very strong balance sheet with little debt.

Double the returns of a deposit account with potential for inflation-beating growth sounds too good to be true. But what of the risk to capital? Protecting the value of the original investment is the deposit account saver's key priority. No one can deny the risk of share price falls. We have just seen some recent market mayhem (though Shell recovered very quickly) and Shell may fall again in the coming months as the oil price softens. Also who can forget the BP oil leak which halved the share price practically overnight (Shell is dealing with a North Sea oil spill as we speak although thankfully on a much smaller scale).

All true but I would argue that the deposit account capital is not as safe as it looks. In fact savings there are suffering rapid erosion is real term and likely to continue to do so as interest rates are held below inflation for several years. At least by buying Shell or similar shares with a proportion of their capital the investor has benefiting in some way from rising energy prices. The risks can be reduced in two ways - buying up shares in stages so that the buying prices are averaged out and diversifying (buying a mixture of shares) through a energy fund or energy ETF, though watch out for charges.

Can you avoid Ryanair debit card charges?

2011-08-08T22:47:00.000-07:00

I asked in my last post (Ryanair's new policy) if anybody had a way round the handling fees they charge on debit and credit card transactions. To recap these are the "sting in the tail" - the £6 fees they charge when you get to the end of the booking process and which are payable for each and every flight. So when I am booking a flight to an from Spain with my kids the charge is £48 for the privilege of paying for the flights I have booked.

Well one reader does not pay the charges because he has a Caxton FX debit card. He just pays Caxton a single fee of £1.50 per booking. I am sure most readers who use budget airlines are on the ball with this option and I am slightly embarrassed that it has taken me so long to get round to it particularly as I book a lot of flights with Ryanair.

On the face of it it definitely looks worth getting one of these cards or something similar. Looking at Caxton's site however it appears that new applicants will be issued with Visa cards and the Ryanair website it says their £6 fee is waived for "Mastercard prepaid debit cards". It would thus appear that Caxton cards, although good in lots of other respects, will no longer be good for saving the handling charges.

Searching online for these reveals a lot of alternatives to Caxton's card:

http://www.money.co.uk/prepaid-cards/prepaid-mastercard-cards.htm

But all of these have their own fee structures and pros and cons. Do your research.

One thing to be aware of is that Ryanair will only accept payment in the currency the fare is quoted in. So if you are buying in the UK, you will be quoted in sterling and your card will have to be denominated in sterling (a lot of prepaid cards are in € or $ for travelling).

Is it that simple? Well Ryanair are famous for their extra charges and I can't see them happily watching everyone switch over to paying by prepaid cards. They have moved the goalposts once already (the Visa Electron always used to be their "free" option for payment). Also I have read some blog posts about Ryanair refusing Mastercards that meet their stated criteria:

http://forums.moneysavingexpert.com/showthread.php?p=45535896

Someone suggested this could be because the card name did not match the name of the lead passenger. Others suggest logging out of Ryanair, deleting your cookies (internet options) and starting again. So if you get a pre-paid Masrercard (and I think I will because the savings are so great for a regular booker) be prepared to continue to have to outwit our friends at Ryanair.

From our website Registering as self employed in Spain

Ryanair's new policy (it's good for once)

2011-08-01T22:22:00.000-07:00

We’ve all been wound up by Ryanair over the years haven’t we? The luggage Nazis who patrol the queues looking for oversized hand-luggage, the unseemly stampedes for a seat, the grinning mug of Michael O’Leary as he announces some other way of making his customers suffer and those enticing low fares that balloon when the extras start totting up.

A typical example: Ryanair criticised over New Year advert. Ryanair ads suggested we all spend New Year’s Eve celebrating in Dublin using their super low £7 fares. Just one problem with that – the fares were for January and February so the earliest a reveller could arrive in Dublin would be as the clearing up began.

But now for something completely different. In praise of Ryanair! They now quote their fares with taxes and charges included. There are a few extras like the “EU 261 levy” and an online check-in fee but basically a flight of £50 costs more or less £50. Actually there is the other hidden charge which is a complete wind-up – the charge for using a credit or debit card which multiplies with every flight you book and bears no relation to Ryanair’s actual transaction costs. But all the airlines do that don’t they (and some other online merchants).

I use a Ryanair a lot and there are good reasons – they are in my experience less prone to delays than other airlines and, even when all the extras are added in, they are often the cheapest. One thing I have noticed is that it does NOT always pay to book a long way in advance. It is often the case that waiting until nearer the time (but not too near) is cheaper. I am also told that it is also wise to delete your cookies that track your previous searches and also affect the prices you are quoted (anyone know if that’s true?).

A final plus point for Ryanair – they make it free to print out your own boarding pass and skip check-in at the airport. Judging by some of the long and slow-moving queues I have seen at Malaga and London recently , that is a blessing.

From our website this week: Guide to Spanish Double Tax Treaty

Spanish taxman says "Stand and deliver"

2011-07-26T22:49:00.000-07:00

What an absurd song that was! Good fun video though. Certainly more fun than the tax nightmares that have been visited on innocent property owners in the Valencia province recently.

I read about this story on the Costa Blanca News website and am indebted to their reporter Tom Cain for his diligent reporting of this unpleasant situation which seems to be confined to Valencia at the moment. According to the article, property buyers are being hit with back tax demands, sometimes running into the thousands of euros.

Click on the link for the full story - Expats hit hard by property tax probe - but in essence it relates to the tax you pay on purchase of a Spanish home. This is commonly called "stamp duty" by expat buyers and does work like UK stamp duty except that the % you pay is higher - between 7-8% of the purchase price depending where you are buying.

Another difference with the UK is that tax avoidance is rife on property transactions where the sale price in the contract often bears no relation to the actual price agreed. This allows the buyer to save on stamp duty and the seller to reduce their capital gains tax liability. The difference is usually made up in cash and can run into tens of thousands of Euros.

The tax authorities have always known about this practice (it would be impossible not to being completely routine in some areas) but have usually been content to accept it so long as the declared contract price is not too much lower than expected market value. But in recent years some cash-strapped regional governments have sought to levy extra stamp duty on transactions they think have been falsely undervalued.

The article here talks about highly retrospective charges though running into the thousands with very little apparent justification in terms of valuations being too low. Hopefully it will be just something that applies to Valencia and will spread no further but it certainly should give property buyers cause to think twice before committing. Not exactly what Spain needs right now - another reason for foreigners to lack the confidence to buy property here.

See also on our main website - Spanish property taxes for non-residents

The finest generation?

2011-07-20T22:46:00.000-07:00

If I were asked to name the public figures I most admire it would be sure to include David Attenborough. Not only do I enjoy his work but he speaks a lot of sense about the environment and population growth. Here are some of the other people I most admire in the world today:

The Queen - for retaining her dignity and barely putting a foot wrong during a lifetime under intense pressure and scrutiny

Clint Eastwood - can't remember a film of his I didn't like either as actor or director. A rare independent talent in Hollywood.

Warren Buffett - the greatest investor of all time who is giving away his fortune (all $50 billon of it!)

Richie Benaud - peerless cricket commentator

The remarkable thing is not that all these folk are in their 80s but that I don't think about their age when I see or read about them; they are just admirable people who are much the same now as when I first began to appreciate them. Of course not everyone living into their 80s shrugs off the passing years: giants of recent decades like Nelson Mandela, Margaret Thatcher, Dickie Attenborough and Alan Greenspan are still around but are shadows of their former selves.

But just think of how many people are still major players in their spheres at 80 years and beyond:

Stirling Moss

Robert Duvall

Christopher Plummer

Lee Kuan Yew

Duke of Edinborough

Rupert Murdoch (mmm?)

George Soros

Sean Connery

Bernie Ecclestone

William Rees Mogg

Christopher Lee

Mikhail Gorbachev

Gene Hackman

Ronnie Corbett

Bruce Forsyth

Ginger McCain

I am sure you will have your own names to add to this list. A US website publishes a list of the 80 most powerful 80 year olds every year.

UPDATE: oddly enough another octogenarian superstar came to my attention the day after publishing this piece: Peter Munk, Chairman and Founder of Barrick Gold, now the biggest gold miner in the world and a great investment potentially (but that's another post).

Longevity and retaining vigour well into old age is nothing new (Gladstone was British Prime Minister at 84) but it is inevitable that better healthcare, changing attitudes and other advances mean that increasingly we will see many more great careers extended and more stars lingering in the spotlight. A great thing of course but another thought springs to mind - is this particular generation of octogenarians special? I think so.

Go back to people like Attenborough and the Queen and think of their qualities: unfussy and unflappable, motivated by goals other than fame and money, a keen sense of duty, practical, uncomplaining, self-reliant and responsible. I may have kept my rose tinted specs on too long but I think we are seeing not just a triumph for good diet and medicine but evidence that growing up before the war instilled some of the best of human qualities in a generation.

From our website: Prospects for the UK pension system

Ignore the media storm. BSkyB's a steal.

2011-07-12T22:46:00.000-07:00

It's has to count as a heartening week for democracy and for standards in public life when some (very) bad journalistic practices brought a global empire to its knees. Although bringing NewsCorp to book over the phone-hacking allegations should have happened years ago, it shows yet again why public companies should value their reputation for integrity as their most prized asset.

But as an investor I have been almost as interested in the sideshow surrounding NewsCorp's bid for the 61% of BSkyB they don't currently own. Just to recap they offered 700p a share for the company in June last year; the bid was delayed as it had to clear various regulatory hurdles. In the interim the share price rose to around 850p as the market expected Murdoch would have to pay 900p or more for the big prize.

Now, just as the finishing line was in view, the whole bid is off and may not be revived. The arbitrage specialists who had bid up the share price in anticipation of a quick killing have fled to nurse their losses and the share price is now 705p (BSY:LSE) having gone as low as 660p. Shades of the BP gulf spill and another blue chip share meltdown but this is completely different and a great buying opportunity.

For one thing the BP spill seriously undermined the fundamental value of the company, plaguing it with uncertainty, eating up cash and forcing it to cancel the dividend and sell prize assets. B Sky B may suffer a temporary "guilt by association" reputational knock but its core business is not affected. And what a core business...

Murdoch did not scheme and plan for years to get the bid through for sentimental reasons. He knows the company is superbly well -placed to capitalise on its position as the UK's leading broadcaster. A lot of the hard work has already been done - winning 10 million paying subscribers and investing in its technology, programming and new products. There cannot be a more consistently successful large corporate innovator in the UK. Goldman Sachs agrees that this already profitable company is about to enter a phase of improved cashflow and improved earnings: Goldman rates BSkyB a buy.

There are risks. Some have speculated that News Corp may have to sell even its 39% stake but I find that alarmist. Also the pre-scandal price took account of cost-cutting synergies between Sky and NewsCorp. Longer term there may be a threat to Sky's business model from internet piracy as I discussed recently here We're going to pay for all this free stuff. But the strengths are too numerous to ignore.

The company already yields 3% and trades around 14 times earnings which is very low for a company in this sector, with next to no debt and considerable competitive advantages. What is more, as this article explains, there is the potential for the end of the bid to result in the board of BSB making a huge special dividend to shareholders of up to 20% of the current market value: BSkyB investors expect special dividend if NewsCorp bid fails. Buyers will soon be circling again and the share price is likely to rise in the short and long term.

From our website: Taxation of rental properties in Spain

Spanish tax advice that could cost you dear

2011-07-07T23:24:00.000-07:00

As I am sure the whole of Spain knows by now the annual tax return season has just ended. The Spanish tax office (Agencia Tributaria or more colloquially La Hacienda) have issued some interesting stats about the tax campaign which I have summarised below. But before coming onto that, I must point out an error on a website popular with ex-pats (Euroresidentes.com) which could have serious repercussions if anyone believed it. They say, in answer to the question “I am a foreign resident, I live in Spain and receive a monthly pension from England. Do I have to declare tax in Spain?”:

No. If you collect your pension in England must comply with tax laws of that country with respect to their income. Only people who have a job or a pension in this country have to declare that income in Spain.

This is absolutely incorrect as we describe on our website: Do I have to do a Spanish tax return?

Anyone who is tax resident in Spain – generally those living here more than half of a calendar year – has to do a tax return and declare all their income including income earned outside of Spain. The only exception is if this income falls below certain levels (see Spanish income tax rates 2011 for these) or if the overseas income is exempt from Spanish tax. There are few such exemptions, the most common being income from a “crown” pension (basically a UK government pension which is, because of the UK-Spain tax treaty, taxed only in Britain).

So I hope no one has read this kind of advice and decided they don’t need to do a tax return because they have no Spanish job or pension. If for example they are living off foreign savings (e.g. offshore bank account interest) it is highly likely that not declaring will come back to haunt them. It is also worth noting that all foreigners who become Spanish tax resident should declare in the first year of becoming resident regardless of the sources or level of their income.

As for the Hacienda’s stats (see Agencia Tributaria website), these revealed:

The average wage declared on tax returns was 22.596€. Given that the law paid do not have to do returns the average wage of all Spanish people must be a lot lower.

2/3 of taxpayers had wages less than 21.000€ a year. Only 3,8% declared gross salaries in excess of €60.000

There were around 1.5 million business declarations and 600.000 autonomos declaring

About 12.7 million declarations were made seeking a tax rebate and so far 6.2 billion € has been returned to taxpayers

A golden generation

2011-07-04T12:10:00.000-07:00

The Queen - for retaining her dignity and barely putting a foot wrong during a lifetime under intense pressure and scrutiny

Clint Eastwood - can't remember a film of his I didn't like either as actor or director. A rare independent talent in Hollywood.

Warren Buffett - the greatest investor of all time who is giving away his fortune (all $50 billon of it!)

Richie Benaud - peerless cricket commentator

But just think of how many people are still major players in their spheres at 80 years and beyond:

Stirling Moss

Robert Duvall

Christopher Plummer

Lee Kuan Yew

Duke of Edinborough

Rupert Murdoch

Sean Connery

Bernie Ecclestone

William Rees Mogg

Christopher Lee

Mikhail Gorbachev

Gene Hackman

Ronnie Corbett

Bruce Forsyth

I am sure you will have your own names to add to this list. A US website publishes a list of the 80 most powerful 80 year olds every year.

From our website: Prospects for the UK pension system

Spanish protesters are indignant about the wrong things

2011-06-27T13:31:00.000-07:00

Anti-Crisis protesters, indignados ("indignants"), have been marching across Spain to express their frustration and outrage at the country's economic situation - and the measures being taken to tackle it.

You can understand why people are out on the streets, particularly the young, with even a university education proving almost useless in the face of 20% unemployment. On top of that there are public spending cuts biting and laws being passed to erode pension and employment rights. People feel they are being punished with austerity and economic misery for the sins of others, mainly bankers and politicians.

Do the indignados have a point? What are their arguments and do they stack up?

Protesting “against” the crisis is pretty pointless because you can’t protest against an economic state, but that’s what a lot of the indignation seems to boil down to – a need to let off steam and vent frustration. Some protesters though have articulated anger against specific policies, people or institutions they hold responsible for causing the crisis or worsening its effects. From what I have read these are the main grievances:

- Unemployment

- Reduced pensions

- Reduced employment protection

- Austerity in the form of tax increases and spending cuts

- Corruption

In terms of who they are angry with, apart from the politicians and banks, it is chiefly Europe because of a "Euro Pact" made in the spring forcing deficit countries to reform and enforce fiscal discipline (as one Spanish paper sees it The European Pact punishes workers and social spending)

My problem with these protests is that they protest against the problem and the most likely solutions at the same time. By all means be angry about unemployment but don't then complain about changes to worker protection laws because these are desperately needed to increase employment. Similarly it is dubious to protest about public spending cuts when it should be quite obvious from the Greece situation that things could be much worse for Spain without some short term pain now. Also attacking Europe as if it is some kind of Thatcherite institution administering harsh economic medicine is ridiculous - they should not be attacking the Euro Pact, which is just what Spain needs, but challenging the Euro which is at the root of a lot of the misery.

Reading one website's description of the protests (Indignation against the crisis and for a general strike) I was struck by the truth of one reader's comment in reply-

"The indignation is against a lot of things And for that they are? What specific solutions do you propose? What will you do to feel represented? The solutions are not free rain from the sky"

I quite agree. At this stage the protests merely look like a disorganised and contradictory series of gripes. I too feel the politicians of Spain have let the country down (although the country was happy to play along during the boom), but actually now they need to be more radical and stick with a reform agenda rather than cave into these woolly headed indignados.

Arise Sir Mervyn! No, really, we're serious.

2011-06-16T22:48:00.000-07:00

When I first read that Mervyn King, governor of the Bank of England, was getting a knighthood, I thought it was a joke. Like Gadaffi getting the Nobel Peace Prize or Gary Glitter being honored for his work with children. It is an extraordinary decision even allowing for the fact that any senior figure in the public sector seems to get a gong whatever their track record (how long before it’s Lord Brown of Deficitshire?). Talk about rewards for failure.

He certainly can’t have got it for doing the job he is officially charged with. According to their website, the Bank of England’s mission is:

“Setting interest rates to keep inflation low.”

Look a little lower down and you see the current stats: Bank interest rate 0.5% Inflation 4.5%. It is clear that the Bank has thrown away its mission statement and adopted a stance more like “setting interest rates ludicrously low to guarantee high inflation”. Inflation has now been above target for nearly 3 ½ years.

Pensioners, savers and charitable trusts are being mugged with negative interest rates that are quickly eroding the value of their money. Ordinary workers are getting pay rises of 0-2% and are having to cope with food and energy price rises into double figures.

The argument that inflation is down to temporary factors like high oil prices wore thin long ago. It was four years ago when Mervyn wrote this, in a letter to the Chancellor :

“an unexpectedly sharp increase in domestic energy prices” and “weather-induced” high “food prices” had pushed inflation over target, but the Bank could safely “look through the short term volatility in inflation” and was “on track to meet its target in the medium term”.

He said pretty much the same at the Mansion House this week. Four years of the same tired old excuses. If they were serious about inflation, the MPC could put up interest rates, strengthen sterling and lower imported food and energy prices at a stroke.

He has practically admitted that the inflation remit has been sacrificed but claims that the economy simply cannot stand higher interest rates. He thinks we should gladly accept an insidious transfer of wealth from savers to borrowers as the price of recovery. But how strong will that recovery be when the supposed demand boost from low rates is offset by higher prices? Retailers have been lining up to complain about the effect of high inflation (particularly petrol prices) on the spending power of their customers, and this is a direct result of the falling pound, the very thing King and the MPC have been seeking.

But my real problem with Mervyn King is not his current policy choices which are admittedly tricky given that the country is practically bust. It is the choices and miscalculations he made during the boom which preceded the recession and directly led us to this point.

He and Gordon Brown may propagate the myth that some overpaid bankers and sub prime Americans ended the apparently golden economic decade prior to 2007. But the credit crunch did no more than expose the fact that most of the economic growth during that time was illusory - built on a flood of debt and precious little else. Money supply grew by an average 11.9% p.a. between 1996 and 2007.

King was in charge during the boom but did nothing to try and calm it, despite warning signs flashing red: soaring house prices, a credit binge that saw households triple their debts to £1,500 billion, gaping balance of payments deficits, crazy bank excesses and highly leveraged takeovers.

The hangover from all this is what underlies all the economic suffering today. Why did he do nothing? He miscalculated that because retail price inflation wasn't rising too fast then everything was OK. He had his eye on one gauge of monetary health and ignored the bubbles and credit build up around him.

It's a bit like a man driving through a built up area with a dead pedestrian on the bonnet and carrying on as normal because he is travelling under 30 miles an hour: one thing is right so everything must be alright.

You might have thought that the 2008/9 recession would have caused a rethink but, apart from some scapegoating with the banks, nothing has changed. We have the same governor peddling the same low interest rate policy to encourage households to take on even more debt – the goal is £2,100 billion according to government forecasts.

The more astute readers will have spotted that my blog’s picture is not actually Sir Mervyn but his double, Benny Hill. Benny never got a knighthood but perhaps he should have – his comedy might have been bawdy and corny but at least he reliably delivered what was expected of him: laughs. King has been deputy governor or governor for 14 years now and has, by slavishly adhering to the low interest rate orthodoxy of the age, delivered an unsustainable boom, a foreseeable bust and now seemingly endless stagflation. Of course he hasn’t done it all on his own but, after honouring him for this colossal failure, the joke is on us.

From our website: changes to non resident taxes in Spain

Avoid child savings account rip offs

2011-06-05T11:32:00.000-07:00

Child savings accounts should be a rare win-win-win situation in the world of personal finance. The child gets a handy lump sum on reaching maturity perhaps to go towards Uni or a gap year. Parents and grandparents get a warm glow every time they contribute towards their loved one's nest egg. And the bank or building society gets a chance to forge a financial relationship for life.

But like most relationships, a banker's relationship with a child is open to abuse. It would appear that some of the UK's beloved financial institutions are not above picking the pockets of children just as they the adults when their backs are turned. Consider this story of the kid who entrusted £100 with tax payer owned Lloyds and got 5p interest (0.05%) in a year:

Scrooge banks rip off young savers with paltry rates

Or the Sky Blues account from Coventry Building Society that entices kids in with a link to the local football team but then offers then a miserable 0.5% annual interest. True there are better deals around, such as the Halifax Regular Saver offering 6% annually (with conditions), but these - just like adult accounts - have to be watched like hawks as the interest rate is sure to drop to nothing once the offer period is up. Indeed the Halifax account reverts to the "easy access" rate after a year, currently 0.5%

The way banks and building societies lower the rates on these accounts is particularly cynical as they know that they are the most likely to be "forgotten about". They are mostly opened with the intention of being untouched for 15 years or more and are often added to by direct debit and are rarely inspected. A perfect fleecing opportunity.

Some better alternatives than trusting the banks:

Getting the best rate on a children's account and then teaching your kid to check the rate every few months and move the account when the rate changes. This will educate them in the weasley ways of financial institutions.
Invest in shares instead. Choose a couple of high yielding blue chips like Shell and Tescos and avoid high management charges of fund managers.
Buy NS&I index linked bonds which guarantee to beat inflation and which do not have tax deducted
Invest outside the UK. Take a long term bet on an area of the world which isn't weighed down by our "rich world" problems. It's risky but maybe a long term bet on Africa or Latin America might be better than sitting on deposit and collecting below inflation returns in the UK.

From the main website: What should you do with your savings in 2011?

Things to remember about your Spanish tax return

2011-06-03T23:50:00.000-07:00

AA very Spain-centric blog this week and at that one that will only be of any interest to people who are Spanish tax resident, declare their taxes and have not already done so. A few reminders:

Everyone who lived in Spain for 183 or more days in 2010 should be submitting a tax return. There are exceptions and if your income is below certain levels then you don't have to declare (but see below). To see these levels visit Spanish income tax rates 2011

If your income is too low to declare it may still be wise or even obligatory to do so: wise because you may have a tax rebate due; obligatory in your first year of residence regardless of income levels. If you never declare La Renta you will never be considered tax resident which can put you at a disadvantage when it comes to paying other taxes like capital gains and inheritance.

The deadline for submitting your Spanish tax declaration "La Renta" is the end of June but to submit allowing the tax office to take your tax (or repay your tax) directly from your bank account, as opposed to paying cash, you should declare by 27th June.

If you are tax resident but have the non resident tax exemption (Beckham's Law) and have been paying the flat rate 24% all year you do not have to do a tax declaration; any non Spanish income is not taxable.

You can pay in two installments to spread the tax burden - 60% at the end of June and 40% in November.

Deductions are available for rent and housing costs paid, including mortgage repayments, if income is below 24.000 level

Mothers of young children (under three) who are working can claim an extra allowance (see Spanish maternity benefit)

If you have rental income it must be declared but if you are renting out a property as a dwelling ("vivienda") you can claim a deduction of up to 60%. If you are renting out a foreign property (e.g. UK) but pay the tax on it in that country you can leave it off your Spanish tax return.

If you have foreign income (i.e. non Spanish) which is not denominated in Euros it needs to be translated at the exchange rate prevailing at the point at which you earned the income. For regular receipts through the year an average rate is acceptable.

We’re going to pay for all this free stuff

2011-05-28T00:34:00.000-07:00

Ultimate Fighting, a mutant blend of martial arts and street brawling, is wildly popular in the US and globally with pay TV revenues bigger even than boxing. People pay up to 45$ a go for live access to the bouts but it is a sport under attack.

Everytime the Ultimate Fighting Championship (UFC) promote an event, illegal pirate broadcasts of the pay-per-view event spring up relentlessly all over the internet – up to 200 on a single US video streaming site and many more around the web often in jurisdictions beyond the reach of US copyright law. It's like the 45$ PPV charge is becoming voluntary.

As this article from BusinessWeek makes clear – ProSports vs. the Web , it is not just UFC that is fighting a losing war against internet piracy. Every single baseball and football game in the States was available free and live (and illegally) last season online.

Do we care that this 220 million dollar business is under threat? Ultimate fighting has been called “human cockfighting” and maybe we should not weep over the demise of a business model that depends on getting men to pay a lot of money to watch other men getting beaten senseless.

But it’s a sign of the times – the disruptive force of the internet is gathering strength and portends some surprising and dramatic results.

For rights owners in the broadest sense, it’s not looking good. If what happened to recorded music (80-95% of content consumed for free with prices for the legal stuff way down) is anything to go by, the results of rampant piracy could destroy business models across a range of industries - sport, movies, TV, books, games.

For example, it is easy to foresee the value of football's Premier League TV deals going down significantly as more people get used to going online to see games illegally. This could get very serious when it is common place to link the TV to the internet and everyone can easily get pirated games in their living room. I could see football club's revenues in the big European leagues dramatically declining.

Will we as the consumers of entertainment end up suffering? I think so. It has been argued that music is still here despite the amount of illegal downloading going on - musicians can make money in other ways like more live shows. But the effects have yet to really filter through - high prices for recorded music have traditionally supported the promotion of new acts and maybe we will see a dearth of new bands in the future. I also worry for the future of the kind of films and TV shows I like - they are expensive to make and if noone wants to pay, even by watching advertising, then who will make them? At this moment in time, the internet's attack on expensive charges for entertainment looks like its all good news for us consumers but I suspect that within a few years the downside will be all to clear.

The unpalatable truth behind Manchester's football triumph

2011-05-19T22:30:00.000-07:00

It would be a hard-hearted football fan who begrudged Manchester its double celebration at the weekend. Man U’s record 12^th title under Ferguson confirms his reign as being the most dominant English football has ever seen. City finally inched out from their neighbour’s shadow with a deserved FA Cup final victory on the same day. But looking beyond the cheering crowds of delighted and relieved fans, the two triumphs represent a more sobering and disturbing truth.

City first. They bought their day in the sun. Ending the barren spell without a trophy took unheard of spending by a rich family with no prior connection whatsoever with Manchester or the football club. The winning goals in both the semi-final and final was scored by YaYa Toure, who was lured to City by a reputed £10 million a year salary. The club’s wage bill is now bigger than United’s, second only to Chelsea and clearly will never be properly sustainable – City lost £121 million last year.

Does this matter? Football’s big club prizes mostly go to the richest and why shouldn’t some nouveaux riche horn in on the trophies? If billionaires from the Gulf and Russia hadn’t come along to buy success then that probably would just have meant Man U and the “usual” big clubs would have been even more successful. Their largesse has also attracted some real superstars to the Premiership and boosted English clubs’ record in Europe. Sad to think though that clubs without a sugar daddy are seemingly doomed to play for scraps, although it should be remembered that Stoke made the Cup Final and Birmingham won the League Cup.

The red half of Manchester is celebrating a 19^th league title. As ever the manager deserves huge credit for getting a far from vintage United squad over the line. Most commentators have pinpointed Wayne Rooney’s new contract in the Autumn as the turning point. The argument goes that he has made all the difference in the second half of the season and Fergie was right to give him the new contract when many – including a lot of fans – had lost patience with his sleazy antics, perceived greed and alarmingly poor form.

It’s hard to fault that analysis. Rooney has not set the Premiership alight in 2011 but has recently been effective in that space between an inconsistent midfield and an inexperienced striker (Hernandez). More importantly there is no one else that could have done the job; he has been the missing link during the title run in, although credit too belongs to the heart of defence and especially Van der Sar in goal.

So shovelling £35 million at Rooney last year was a smart piece of business but it still leaves you feeling uneasy. Here is a player who dragged his family and club through the tabloid mud, openly played his employers off against other clubs to get more money and offered up only half a season of reasonable performance (11 league goals including penalties). United fans will know that paying Rooney off was a vital part of title win number 19 but I doubt he will ever join the real legends of Old Trafford like Charlton, Robson and Giggs.

Are Spanish private pensions a waste of money?

2011-05-12T12:10:00.000-07:00

I have just been researching Spanish private pensions for an article on our main website ("Tax treatment of Spanish private pensions") and it left me feeling somewhat depressed. The system is supposed to encourage private pension provision by making the contributions tax free but, having dug into the topic, I wouldn't touch a Spanish pension scheme with a bargepole. How come?

If you focus solely on the tax benefits then you may well ask “what’s not to like?”. You can offset up to 10.000€ year against taxable income and you save your highest rate of tax – up to 43%. It gets even better for over-50s who can offset 12.500€ annually. But when you consider what happens once you have signed up to a pension plan and paid over your contributions, then the warm feeling generated by the tax saving starts to wear off. Here are the issues:

1) Barring some minor exceptions, your money is well and truly tied up until the normal state retirement age (65 and rising)

2) When you retire the accumulated fund can be taken as income or capital in a variety of different ways (lump sum, draw-down, annuity purchase) all of which are taxable like any other income. There used to be some tax deductions for pensions income taken from these plans but these have been scaled back.

3) Most of the pension plans I have seen charge 2% a year for administering your pension plan

Think about these drawbacks a different way – you don’t take out a personal pension plan and do your own savings. Ordinary (as opposed to pensions) savers won’t get the tax benefit of offsetting pension contributions versus taxable income and will have to pay tax on the investment income and capital gains on their savings. But on the other hand savers can invest their money themselves, avoid the 2% annual charges and draw down their savings when they like without paying income tax when they do so.

This last point is very important when comparing pension plans with ordinary savings and investments. You pay tax in both cases: pension plans save you tax initially and as you build up your returns but you pay tax when you retire on everything accumulated; ordinary savers get no tax relief to begin with and pay tax on their investment returns but don’t pay later on. You will really only gain if you pay higher rate taxes during your working life but pay the lower rate in retirement; not an uncommon situation as people mainly have lower incomes when they stop working but still food for thought. People who pay the same rate of tax pre- and post- retirement should think of pensions tax relief as “tax deferred” rather than “tax saved”.

And what about those charges? 2% may not sound so much but it is extremely significant both because it is high in terms of the returns available to most investors and because the effects are magnified over time. Additionally plan providers take a 0.5% commission on contributions as they are made to the plan. Also the underlying funds which the contributions are invested in may make charges which reduce the investment returns.

If pension plans were returning 8-10% a year, then a 2% annual management fee would not be so noticeable but when returns are down to today’s negligible levels, it makes a big difference. A 10 year government bond for example can yield as little as 2% today and the FTSE 100 yield is about 3%. Riskier assets yield considerably more but the risks to capital are greater. Inflation has recently been depressed by the recession but has been running at 3-4% in Spain. So with management charges and inflation eating away at capital, the underlying investments have to do very well (e.g. make 6%) just to stand still.

And how do the pension plans perform? Well there are literally hundreds but the ones I looked at didn’t inspire much confidence. For example La Caixa’s flagship fund “Nacional” would by my calculation have seen investments shrink by 7% (even before taking inflation into account) during the last 5 years. CajaMadrid charge 1% a year for their safest, fixed return funds but this has returned a measly 7.5% over the last 5 years, scarcely enough to cover the charges and a big loss after inflation. Their international fund (2% charge) has lost 32% in 5 years.

All in all it looks like Spanish pension plans are good for the banks who sell them but are to be treated with extreme caution by anyone who doesn’t fit a certain tax profile.

Obama´s no hero (but he could be)

2011-05-04T02:43:00.000-07:00

The real significance of Osama Bin Laden´s demise is not so much the blow to Al Qaeda or the avenging of 9/11, it is the spotlight it has cast on the ambiguous role of Pakistan in relation to Islamic terrorism. It could be a real opportunity to shake up what has become a depressingly unproductive and pointlessly bloody campaign in the region. But many of the headlines have been grabbed by President Obama´s role and the supposed strength, courage and leadership he has shown.

It is very puzzling that he has been lionised simply for making some rather obvious decisions in his own and America´s interests. Is it so surprising that he asked his intelligence service to prioritise finding America´s biggest bogeyman since Hitler? Was it so courageous to order his special forces to kill or capture him once he was tracked down? Should we credit him or the Pentagon for the fact the raid went so smoothly from a US point of view?

It is said that he made "a gutsy call" over whether or not to send troops to the ground rather than bomb the suspected hiding place. But since a bombing would have obliterated the evidence Obama needed to show his electorate and the world, he was always going to choose the dramatic option.

Risky? Perhaps for the special ops guys going in but any soldier in the world would want to be part of such a potentially glorious mission. If it had gone wrong all Obama had to do was tick the no publicity box.

I have nothing against the man and am certainly no wild-eyed "birther", but Obama has been over-praised on this one. If he really wants to show some courage he should take on two much bigger questions both of which have been allowed to drift for too long: the war in Afghanistan, which is achieving far too little for far too much, and the aforementioned role of Pakistan.

The mission itself showed that the US has the power to project force in the region without occupying Afghanistan or giving a blank cheque to Pakistan. Time to quit letting Pakistan play the West for fools and quit Afghanistan fullstop. Now that would be courageous.

From the Advoco website: Contracting in Spain

Spanish bureaucracy gets funny

2011-04-28T01:55:00.000-07:00

Sorry if you have seen this before. I put it on the main website under "Autonomo : the Movie" but it is worth a look, even a second look. It´s a short film from the No Todo FilmFest (Spanish but with English subtitles) that features a young woman trying to register as autonomo and coming up against an intransigent bureaucrat. Sounds very unpromising material but actually is extremely well done and anyone who has dealt with Spain´s officialdom will agree that it is achingly true to life. Thanks to the client (an autonomo himself) who alerted me to it. It is 3 1/2 minutes long -

Our autonomo service is not quite as painful: Services for self employed / autonomos Spain

Spanish tax form 210 - All change!

2011-04-21T23:03:00.000-07:00

A bit of a technical post this week that will only be of much interest to non resident Spanish taxpayers. The system for paying taxes as a non resident changed on 1st April. The changes are not huge but the bureaucratic fiddling about is likely to cause some confusion.

To recap for those of you who are not familiar with Spanish non resident taxes, the tax system in Spain is a bit different to that in the UK when it comes to foreign property owners. In the UK, and most countries, a foreign property owner would only pay tax if they actually earned income in the country e.g. they rented out the house when they weren't there.

Spain taxes rental income like that but also has a quirky and irritating rule that even foreign property owners who don't rent out their property and have no Spanish income must register for and pay income tax. The tax can vary from 20-30€ up to several hundred € a year depending on the rateable value of the property. There is a full description on our main website - Spanish Tax Form 210.

The tax is still payable and the form for paying is still the same (modelo or form 210) but:

- there is no longer a paper copy of the form available so you can't go to the tax office and get a form to fill in

- you either have to complete the form online or print out a copy from the website and present it at the bank

- where there is NIL tax to pay or a return to the taxpayer then this has to be presented (or posted "certificado") at the Agencia Tributaria office

- it can now be used for whatever income non residents have, the main categories being earned income from Spanish assets (e.g. rent or dividends), capital gains and imputed income from property.

- the modelo 215 which was used for rent in the past has now been replaced by the 210

- returns of tax to a taxpayer can now be made to an overseas account (non-Spanish)

That's about it but it's a new law so as we go through the year and start doing our clients' non resident tax returns then we may learn more about how this is all going to work in practice. I will post any updates here or on the main site here: Changes to Spanish tax form 210

Has the bears' case against Spain gone down the pan?

2011-04-14T22:52:00.000-07:00

It was supposed to be PIGS in the plural not PIG. The smart money was betting on all the Euro area's peripheral economies buckling including Spain and not just Portugal, Ireland and Greece.

As Portugal finally opted to accept a bailout package, the headlines inevitably posed the question "Is Spain next?" The markets answered pretty emphatically "No". Ten year Spanish government bond yields stayed steady at just over 5% as they have they have done all year (for comparison the UK equivalent is around 4%). Traders and investors seem to have been reassured that Spain's economy is in better shape and crucially the government debt in relation to the Spanish economy much smaller than Portugal's (63% vs 83%).

Also the Spanish government seemed to have been shocked into action last year and made some labour market and pension reforms, put up taxes and cut spending and made a start on clearing up the mess in its banking system.

Everything OK then? Of course not, Spain is barely growing (GDP up just 0.6% last year), the banks have a lot of Portuguese debt, the housing market is still a disaster area and unemployment is shockingly high. On top of that the ECB has chosen to put up interest rates by 0.25% which feeds through to the EURIBOR rate which sets most Spanish mortgage rates. By some estimates this, and subsequent rises that the market expects to see, could add 800€ to the cost of the average mortgage. And of course there are the strikes we have seen recently and some big job cut announcements (Telefonica to cut 20% of its spanish workforce). Add in rising petrol prices and higher taxes and Spain is not a bear that is out of the woods just yet.

From the ADVOCO website: Spanish Income tax rates 2011

The environment: capitalism to the rescue

2011-04-07T22:56:00.000-07:00

If you are concerned about the planet's wellbeing, it would be very easy to get discouraged at the steady drip of bad news about the environment. The nuclear disasters in Japan were bad enough in themselves but the predictions that they will result in even greater demand for fossil fuels make them a double blow. Recently we had World Water Day to highlight the growing crisis around water shortages in many countries (see map here A Graphic Look at the World Water Crisis).

So where's the chink of light in the gloom? Business is normally seen as a threat to the environment; profit maximising companies plunder resources and strew the planet with waste. But there is another side to this: capitalism is an essential part of the solution, with or without government legislation. I can think of at least three ways that capitalism will need to be harnessed if the world is going to grow sustainably:

- investment. The huge sums required to build smart grids, cleaner power stations and renewable energy sources can only be mobilised efficiently by capitalism. We have seen the results of state-led investment programs before and they don't work.

- technology. Innovation and the profit motive go hand in hand. There are countless examples of this e.g. this gas from rubbish process Harvest power biogas

- recycling. Capitalism is essential to the cutting of waste. Although private decisions to use less carrier bags use the car less are important, only commercial logic can make efficiencies on the scale we need. As an example of this look at the whole business of recycling.

And what a big business it has become; and I am not just talking about cardboard and glass. One of the biggest growth businesses in recent years has been in recycling mobile phones. And the concept is spreading to all sorts of goods which can be reused rather than thrown away or left to gather dust in a cupboard, particularly baby-related and electrical products. Ebay has done a lot to promote recycling, as have websites like recycle.co.uk ("Don't bin it, recycle it!")

Spain doesn't seem to have such a big recycling community although I did find some fledgling "freecycling" groups here: http://www.freecycle.org/search

Even in Spain there are some good examples of businesses which save customers money and cut down on waste. As an example many people want a new computer but don't need anything too fancy or advanced. They can pick up a working laptop for a fraction of the price of a new one from businesses like www.reconlaptops.com.

From our website Spanish Tax Form 210

Are cheap holidays for pensioners such a good idea?

2011-03-31T11:56:00.000-07:00

Did you know that the Spanish government pays for over a million pensioners to go on holiday every year? There is a program called IMERSO (Institute for Seniors Social Services) which aims to subsidise holidays for the retired community and does so on a grand scale.

The scheme is 25 years old this year and has given the chance of cheap holidays to millions of pensioners. The idea is that the state subsidises holidays within Spain (& Portugal), including travel, full board accommodation, insurance and entertainment, for anyone drawing a state pension.

The objectives are to provide a social benefit to the retired and to benefit the domestic tourist industry, particularly during the quieter months of the year. The price list is shown on the Spanish social security website and, considering it is "all inclusive", looks pretty cheap. For example, a week in Portugal for 182,70€ (per person based on two sharing). A month in the Balearic Islands for 590€.

Apparently it costs the government around 150m€ a year. Unsurprisingly travel and small business lobbyists, particularly in the tourist provinces are well in favour. They claim that the scheme actually generates a profit for government with the increased employment and tax receipts generated.

On that basis then maybe all the Spanish government needs to do is spray the subsidies around more generously. Maybe they could offer bingo subsidies or cover the cost of coaches to away football games or even arrange cheap shopping trips to Madrid and Barcelona. All these things would generate spending and commercial activity and thus boost the government coffers. Ed Balls, the Labour Shadow Chancellor, is offering a similar line of argument - more government spending "supports" the economy, promotes growth and will thus improve the public finances in the long run.

Forgive me if I don't buy into a word of this economically illiterate balderdash. Economies thrive when taxes and regulations are light; government finances thrive when they are responsibly managed and the books are balanced. Soviet-era subsidised charabang trips to the seaside are not the route to economic success.

From our website IVA Rates in Spain

Japan quake rocks the uranium investment case

2011-03-24T23:38:00.000-07:00

It was supposed to be another big "can't fail" commodity play like oil and precious metals, but since the Japan earthquake sent powerful shocks through the nuclear power industry investors who bought into uranium have cause to regret.

Before the horrendous disaster in Japan and the subsequent radiation leaks, I was seriously thinking of getting some, er, exposure to uranium. The bull case seemed pretty much irrefutable the more I looked into it:

- emerging market energy demand is growing remorselessly

- in particular, growing car use is making it ever more likely that the oil price will go stratospheric and usher in the age of the electric car

- if the world pays any attention at all to global warming fears, some of the new generating capacity will have to be nuclear. Many countries including the UK, India and China have nuclear expansion slated.

- once nuclear power capacity is built it will consume uranium for decades - the economics and science of nuclear practically lock in demand for uranium whatever the price (as was shown in 2007 and in the 1970s when the price was more than double its current level).

- one of the key sources of uranium to supply nuclear plants today is recycled material from decommissioned warheads. This is a finite source and will need replacing by new mining within a couple of years.

Lucky I did not pile into a uranium investment such as the large Canadian producer Cameco. The uranium price fell by 27% after the nuclear emergencies in Japan became news and Cameco's share price dived. Unsurprisingly given that nuclear has always been vulnerable to safety fears and is in any case always going to be a controversial choice of new power given how expensive it is and the issues surrounding nuclear waste disposal which have never been resolved. Germany has resolved to get rid of its nuclear capacity much earlier than planned and even China has paused its building of new plants.

Some sense a buying opportunity and indeed the uranium price has since rebounded somewhat. China and India are unlikely to scrap their nuclear plans altogether and in some ways Japan was the supreme "stress test" of nuclear power: if a Chernobyl was avoided in such extreme circumstances maybe that shows they are a risk worth taking. Just don't built them on the coast in an earthquake zone!

The real long term winners will be natural gas and renewable energy investments. The disaster will also underpin the already sky high oil price. Shares such as Shell, which is expanding and gets half its output from oil and half from gas, should be good long term plays even though their share price is close to an all time high.

From the Advoco website Contracting in Spain

Good news: the FTSE's falling!

2011-03-16T23:42:00.000-07:00

For anyone thinking about what to do with their ISA allowance or are just looking for an alternative to the depressing returns available at their local building society, recent stock market events should have given plenty of food for thought. On the face of it, with the FTSE (and most world stock markets) falling, one thought would be - don't bother with shares, they are too risky. Look a bit closer though and you might come to a different conclusion.

The FTSE 100 has had a good run since the financial crisis, up 69% (84% if you include dividends reinvested). Share prices have fallen sharply though over the last few days perhaps on fears that the oil price rise, goepolitical instability and Europe debt fears will drag on markets. The Japan earthquake has taken share prices lower too. That suggests share prices have had a good run and the risks are on the downside going forward.

Maybe, and I don't propose to go into all the arguments here but I would highlight some other bits of recent news from the UK stock market concerning dividends:

** Morrisons announced it would be increasing its divi by 10% for each of the next three years and returning 1 billion £ to shareholders via a share buy back.

** Prudential announced a 20% rise in its dividends

** AMEC, the energy services and engineering company, announced a 50% hike in its dividend

If you focus on the underlying income that shares generate rather than share prices, the news is mostly excellent and actually has been very good over the last decade.

People often make a comparison with share dividend yields and bond or bank deposit interest. Currently you could get 2.5-3% from bank accounts and around 3.5% from the FTSE. The argument goes that shares are risky so they should be yielding considerably more. On that basis you should wait until share prices fall back and yields rise; in the meantime "play safe" in cash.

But I would argue that the comparison is false. Interest on bank deposits is static (or falls when unscrupulous deposit takers quietly lower their rates and hope you don't notice) whereas dividends should rise over time, if you pick shares in the right companies.

As an example, look at Tesco PLC which in 1998 was paying around 4p a share in dividends. Since then the dividends have grown 10% a year on average to stand at around 11p in 2010. Tesco yields around 3.25% but the key point is that if it continues to grow its earnings and dividends by anything like the rate it has achieved in the past, the yield (particularly with dividends being reinvested in more shares) will easily beat interest bearing accounts.

But will companies like Prudential, AMEC and the supermarkets continue to grow particularly if recession returns and some serious global crises unfold? I would argue that certain companies with pricing power (strong brands and competitive positions) and in key sectors (utilities, energy) should continue to grow their earnings even in an uncertain economy. Partly this is because they are good defensive companies we can't live without, and partly because the dividend only gives part of the picture. Back to Tesco - they may pay a dividend just over 3% but actually they earn more than twice that amount and that additional money is invested back into the business to underpin future growth.

So when you see share prices falling remember that it could just mean that a great source of growing income has just got cheaper. This certainly is the view of The Sunday Times Money editor Kathryn Cooper who wrote on Sunday: "high quality blue chips with solid dividend yields have been out of favour for three years; surely their time has come".

Spanish tax forms explained

Is Spain nuts to tax online gaming?

2011-03-10T12:30:00.000-08:00

The Spanish government is to start taxing online gaming which has up until now got off extremely lightly. Do they risk driving the industry underground or offshore?

The Spanish Gambling Act pulls no punches and covers all forms of online gaming: poker, bingo, sports betting and football pools. Considering that these activities have not formerly been taxed at all, the proposed tax rates are extremely punitive. The rates vary between 10% (for poker played between individuals) and 30% for certain sweepstakes. Most activities are taxed at 20% of the gambler's stake.

The online gaming industry is most upset that these rates apply to the GROSS amounts wagered; they had lobbied for a tax only on net income after winnings had been paid out. The government turned a deaf ear to their requests (Internet gambling must also pay tax) more concerned about the loss of an estimated 315 million € tax than the feelings of the profitable website owners.

Of course the move could backfire in more ways than one. Experience of other countries, including Britain, shows that taxing online gambling portals drives the business offshore to places like Gibraltar. Also the government risks gaining a reputation for being "anti gambling" or "anti business" just when a big new casino investment is being proposed: Sands bonanza likely to prove a mirage.

What is it with governments these days? Can they not see that the correct way to deal with deficits is spending cuts and not tax increases. If tax levels were not sky high to begin with I could see the sense in it perhaps, but at the actual levels we have in the West most tax rises (certainly on incomes and corporations) is bound to prove counterproductive i.e. reduce revenues by destroying economic activity. As the UK government is now discovering with the 50% tax band and the "fee" on non doms which is driving away taxable wealth from Britain every day.

New article on our website Spanish tax rates for 2011

Sands jobs bonanza likely to prove a mirage

2011-03-03T12:51:00.000-08:00

It makes quite an attractive and beguiling thought for all of us in Spain concerned about where economic growth and especially jobs are going to come from : gambling will come to the rescue!

Papers last week were full of talk about a proposed Euro Vegas supposedly to be opened in Barcelona or Madrid. The Las Vegas Sands Corporation which operates casinos in Nevada, Macau, Israel and Singapore is talking about a new mega-gambling development which it says could create 180,000 jobs.

The corporation's boss Sheldon Adelson said the project was being "actively pursued" with both contractors and architects. The scale of the proposal is enormous - 20,000 plus rooms and acres of shopping, exhibition and conference real estate. To put that into context there are only 70,000 hotel rooms in the whole of New York and these are to be built from scratch by one company.

Not surprisingly the corporation thinks it will need the "support" of the Spanish government (i.e. subsidy money) for such a big project. The foreign investment, jobs potential and tourist pulling power of such a venture is going to seem very attractive to the national government in Spain not to mention the cities involved who are likely to compete fiercely for the project.

All the press in Spain and indeed in the US and Europe, reported the news like the project was a certainty and that the jobs were practically in the bag. However these grand plans have to be taken with a pinch of salt particularly the promises of hundreds of thousands of jobs which just raise hopes which will more than likely be dashed.

The plans seem very vague and the figures plucked out of thin air by Adelson (who was speaking to the press in Singapore not even Spain) probably to see if the government or city authorities will bite and hand him billions in subsidies or free land. He was talking airily about a resort 10 times the size of the Marina Bay Sands in Singapore which cost 5.5.bn$ In this climate is he seriously talking about raising over 50 billion to spend on a green field project with no proven demand? I suspect it is pie in the sky - the same corporation was in discussion with Valencia two years ago about a big project but nothing came of it. A similar project has been touted (by a different group) in the province of Huesca promising :

"An investment of 17,000 million euros and include the construction of 32 casinos, 70 hotels, 6 major theme parks (and 12 small), museums, golf courses, shopping center and a racecourse" (Gran Scala Deadline)

But surprise, surprise nothing has been built yet and barely a million euros has been paid over for the land. Like casinos themselves it seems the gaming developers promise a lot but deliver mostly disappointment.

From our website Autonomo Social Security

Resist the oily logic on interest rates

2011-02-24T22:31:00.000-08:00

It doesn't seem so long ago that petrol was under 90 cents a litre in Spain and the international oil price had slid below 40$ from its peak of over 140$ Actually that oil price low was around 2 years ago and prices have climbed steadily since until, with the crisis in the Arab world, crude went close to 120$ yesterday - Oil prices hit fresh high on Libya fears

Nomura are warning of oil prices above 220$ I am not in the oil price guessing game - who knows? All sorts of things, good and bad, could come out of the crisis in North Africa and the Middle East. Who can predict what discoveries will be made on the supply side.

But one thing I would take odds on is that many commentators and policymakers will use the oil price spike to justify interest rate cuts or, in the case of most countries, to justify delay raising them from near zero.

I have long argued that the deeply negative real interest rates (the UK rate is 0.5% versus inflation of 4-5% depending on the inflation measure you use) is a weapon to be used in extreme circumstances only and for only short periods to get through a crisis. Holding rates too low for too long is extremely dangerous and asking for bubbles and bad lending which store up future crashes and disaster - just ask Spain and Ireland.

The oil price rise will strengthen the hand of the oil price doves on the Monetary Policy Committee of the Bank of England who have been under pressure of late. They will be able to blame high inflation on this "one off, temporary" factor and will point to the danger of raising interest rates when the economy is struggling to deal with an oil price shock. Rising oil prices drain demand from the rest of the economy and higher rates risk doubling the demand shock - households get hit at the pumps and the monthly mortgage statement.

There will be a lot of this kind of talk in coming weeks and no doubt many will refer back to 2008 when many Central Banks raised rates during the last oil spike which some blame for precipitating the economic crisis.

There are several reasons to resist this pernicious logic. One is technical: if monetary policy is to be used at all to control inflation it should be aimed at a general level of prices across the range of sectors which make up our cost of living. Specific rises in one area - energy for example - are not should not be inflationary in general terms. They are a signal that we should use less energy and find more sources of energy to reduce its price. In the meantime we will reduce our spending on other things which should then fall in price. IE a rising oil price should be neutral overall but be a powerful incentive to do the right things to correct the problem (e.g. invest in energy saving ideas).

If we constantly "fight" oil price rises which owe more to long term issues of supply and demand (particularly from the developing economies) with low interest rates we will stop this natural market process from occurring and risk a very serious bout of stagflation like we saw in the 1970s when the biggest ever oil price shock occurred.

Think of the main cause of oil price rises - China. That country's incredible growth (e.g. doubling of car sales in 5 years) is driven by loose money both at home - negative real interest rates while growing at 10%! - and in its main markets in the West. That wild and unsustainable growth in turn causes oil price inflation which causes, um you guessed it, more calls for loose money policies. And it goes on.

We need to recognise that low interest rates are not a panacea. If anything is going to get the Western economies in particular through the economic and energy problems it faces it is more saving and investment, less consumption and debt. Ludicrously low rates are not the answer.

From our website Authorities tackle tax avoidance in Spain

Electric cars: pie in the sky or investors' heaven?

2011-02-13T01:12:00.000-08:00

Electric cars have been the stuff of fiction and speculation for as long as I can remember but, in practice, have posed little threat to the standard gas guzzlers. There are over 600 million combustion engine cars in the world but only a tiny number of electric cars, a fact which is unlikely to change dramatically despite an apparent surge in interest from governments and carmakers.

There are issues of consumer resistance, battery technology, recharging infrastructure, price (including uncertainty over government subsidy) and economies of scale. But there are plenty of interesting initiatives out there : Denmark and Israel are building a network of charging points and "switching stations" where you swap your flat battery for a charged one in less time than it takes to fill a tank. The 2011 Car of the Year was the electric Nissan Leaf which the UK government is trying to get manufactured in the UK. Spain is aiming for 1 million electric or hybrid cars by 2015 though there are doubts about electric car sales in Spain taking off to this extent. One of the main issues in scaling up electric car fleets in Europe is the lack of a common standard for plug sockets.

But despite all the doubts, there is a future for electric cars simply because the alternative of burning through the planet's oil is not going to be viable for much longer. Exhibit 1 - oil price back over 100$ despite a weak economic recovery in most countries. Exhibit 2 - China. Already the world's biggest car market and growing at 50% (and it has a long way to go - only 2% of Chinese own cars). Exhibit 3 - other emerging markets. As India and the rest follow China's path their middle classes will want cars just like everyone else.

Yes, there are bio fuels, hydrogen cells, liquified gas and other alternatives but I suspect that electric will be the biggest part of the solution. In 2010 the Chinese government threw its weight behind the electric car and aims to be the world's biggest producer by 2012. This will be decisive. Which of course means a massive increase in the need for electric power generating capacity which in turn suggests some investment themes:

- forget the prospect of windturbines and solar powering all the new cars; the world will have to turn to the fuels it has in abundance to achieve the necessary scale. That means coal and gas whatever the carbon consequences might be.

- the electric grids themselves will need expanding and upgrading and will be even more important to the economies they serve. This will mean governments have to allow these monopolies to charge inflation-beating prices for decades. Great if you think like me that stagflation is the main threat and need to find good dividend payers (see what do with your savings in 2011)

- presumably controversial nuclear power will have a role. Uranium miners should benefit though their share prices have already surged in recent times.

- battery makers and battery technology companies but you need to do your research. Warren Buffet, the greatest investor of all time, is a fan - see http://www.rationalwalk.com/?p=11079

This is just a thought to tuck away for the long term (and a fairly obvious one at that) not specific investment advice - a lot of related shares in this area have shot up recently any way. One FTSE share that I would be quite keen on for a variety of reasons as a long term play is National Grid.

Latest from the Advoco website: Spanish income tax rates 2011

Big brother is watching your Spanish bank account

2011-02-03T13:48:00.000-08:00

The Spanish authorities must be getting desperate for money - the papers have been full of scary stories about the tax office (Agencia Tributaria) saying how they are going to raise billions of Euros by cracking down on tax fraud. News of last year's haul even made the New York Times as everyone worries about the prospect of Spain struggling to finance its budget deficit (Spanish fraud crackdown nets 10 billion). This year's priority is to cooperate with the Social Security department to catch people operating in the, erm, "informal" economy without registering for tax. The intention is to use new powers to demand information from utility companies, credit card providers and banks.

The full story is on our website Authorities tackle tax avoidance in Spain but a couple of aspects to all this are worth highlighting. The first is a new rule in force from 2011 but applying to transactions that go back to 2010, that all banks report all transactions over 3.000 with the following details:

- name and NIE (or company name and CIF) of payer/recipient

- amount

- whether deposit, withdrawal or transfer

- date account

Worth bearing in mind if you are paying for a property partly in cash or making a gift transfer which should be declared for gift tax (see explanation Spanish Gift Tax).

Also the Agencia Tributaria are keen on catching more people who don't declare rental income. Already they boast of trapping 200.000 shifty landlords by simply requiring that anyone claiming a tax deduction for rent paid has to state the catastral reference (Land Registry number) of the house or apartment on their tax return. This is used to check the owner's tax return to see if they have declared the income. The once sleepy Spanish tax authorities are waking up!

The smoke clears

2011-01-29T02:17:00.000-08:00

After several years of having a half-baked and ill-enforced smoking ban (which basically exempted 90% of the cafes and bars in Spain) the real thing came into force this month and Spanish public premises are all now supposed to be smoke free.

For all the complaints from bar owners worried about a loss of business and predictions of economic ruin, it was an inevitable move. It's only a few years since the UK got its ban but a reversal back to the old, smoky ways is unthinkable. I am sure that in Spain too it will seem incredible within a couple of years that it was once acceptable to make non smoking customers sit wreathed in the second hand smoke of others. But ...

It appears Spain's conversion to a smoke free environment is not happening without a fight. It's partly down to the economy (a fear that bars and cafes will lose business and an important sector will shed jobs and income) but also fairness.

Not so much the old libertarian position that bar owners should be able to set their own rules, passive smoking fears trumped that a long time ago. The real fairness argument links back to the old law. This stated that bars and cafes over 100 square meters had to be smoke free or have a separately closed off area for smokers with extractor fans. Some owners invested considerable sums (35,000€ in this case - Marbella Smoking Rebel) all of which is now wasted. Worse still they may have taken out loans to finance the changes which they will have to pay back from reduced income. The industry is sure that takings will be permanently down because so many Spaniards smoke.

A recent demonstration by hoteliers, cafe owners etc in Palencia featured banners saying things like "If you don't smoke, we don't get paid. Let us live" and "Total ban, sector ruined.".

You can understand the anger. Regardless of whether smoking bans are fair or not, inconsistent and careless law-making is certainly unwelcome.

Latest article from the main site Do I have to do a Spanish tax return?

Are price comparison sites a rip-off?

2011-01-22T03:27:00.000-08:00

One of the big benefits of the internet is price transparency - quickly being able to see comparative prices and grab the best deal. The price comparison site has sprung up to make this easier and they are now a routine part of life for most of us. But are they to be trusted?

One reason for doubt has to do with a certain cuddly meerkat and an annoying opera singer. PC sites spend a fortune on advertising suggesting they are chasing a very profitable slice of business. If companies can afford saturation TV advertising it usually means they have very high profit margins and you should be wary. Examples are online Bingo, 118 services and certain car insurance companies - it is their customers' cash they are splashing with these campaigns.

So without having any direct information about the profitability of PC sites I can be pretty confident they make a lot of money and this is reflected in the prices. Perhaps it is no coincidence that motor insurance premiums are reported to be rocketing (33% rise in premiums). Direct line, which doesn't use PC sites, uses that fact in its advertising saying that you can save money by cutting out the middle men and their fees.

Another point of concern is how broad the coverage of a site is. You assume that quotes are gathered widely from all market participants but sometimes only 10 or 15 are actually featured out of hundreds of possibles. Some companies besides Direct Line generally don't deal with PC sites - RBS, Green Flag, Tesco, Churchill.

When you consider the ownership of some sites then things can become even murkier. For example Admiral, a FTSE 100 insurance giant, owns Confused.com and some customers have complained "Admiral always come out top of their comparisons". The meerkat company is owned by insurance group BGI.

The papers have been full of reports recently about boilerjuice.com which claims to find the best price on heating oil. It is PC site owned by an Irish company that also delivers heating oil and has ten different brands which are all featured on the site. Some newspapers have conducted tests and found that the site has directed customers to their own brands even when much more expensive than rivals. It is an apparent conflict of interest which the government is looking at - Energy Minister demands heating oil enquiry.

Another danger was highlighted by the Telegraph last week:

Biba, the British Insurance Brokers' Association, claimed this week that some sites were giving people insurance quotes that did not reflect their individual requirements owing to the focus on the lowest headline price. This has led to customers buying products with higher than expected excesses, or which are unsuitable.

"They [comparison sites] have become the tail that wags the insurance industry dog," warned Biba's head of corporate affairs, Graeme Trudgill. "They have made it all about the price and not the cover."

A final conclusion: it's pretty simple really - don't forgo price comparison sites if you find them useful, just don't assume that they are the last word on price and do at least some shopping around, including offline in some cases.

Latest article at Advoco (my Spanish tax site) What should you do with your savings in 2011?

Can you do business in Spain without registering?

2011-01-14T23:27:00.000-08:00

In my experience as an accountant most people wish to play by the rules, do the right thing, fulfil their responsibilities etc ... so long as doing so is not unduly complicated or punitively expensive.

A consequence, which I see a lot, is a frustration among people in Spain who want to do business legally but are put off by the red tape and tax implications, especially social security and IVA (spanish VAT). The problem applies mainly to small part time businesses where the income is expected to be patchy or very low. If you are only expecting to earn a couple of hundred euros a month or are doing something which brings in revenue periodically (e.g. running courses) then it is totally infeasible to set up as properly registered business with the following expenses:

monthly social security

accountancy costs

quarterly taxes

In addition all businesses have to charge IVA which, while it should not be an expense of the business, nevertheless results in higher charges to the customers and a lot of admin.

Also you can't declare income for tax unless it has been earned through a registered business with the IVA accounted for. It's like the old saying about it not being possible to be "a bit pregnant". You can't be "a bit legal" - it's all or nothing. If you want to make your small business earnings legal you have to do all three things - start paying the social security, deal with IVA and pay income tax.

The situation is a bit more complicated than this (see the autonomo guide on our website) but in essence that is the situation - it is totally uneconomic to legalise a small business unless you expect to earn a decent income right away - you either don't start up in business at all or do so on a cash in hand basis.

And lots of people in Spain do. Much more so than in the UK. One of the reasons for this is that in the UK there is a threshold of 70.000 before which businesses do not have to register for VAT. This means small businesses do not have to worry about one of the main business headaches until they are well-established. Imagine if Spain had a similar system - some IVA would be lost to the government but many more businesses would go legal and pay income tax and social security. Some would grow big enough to start paying IVA.

In the UK some voices are calling for the VAT threshold to be raised even further. The Federation of Small Businesses has suggested a rise to 90.000£ would create 35,000 new jobs according to the BBC. Spain can only dream of such a windfall. But this is what Spain badly needs. With so many people unemployed and the Spanish economy stagnating, making it easier to initiate LEGAL new businesses is essential.

The UK also has national insurance breaks for small businesses and is much more flexible in allowing income to be declared when there is no job or registered business involved. Spain desperately needs a similar approach.

From the main website What should you do with your savings in 2011

Are public sector pensions really gold-plated?

2011-01-08T01:39:00.000-08:00

You can usually tell when the British press have stumbled onto a big issue that strikes a chord with the public - not only is there a rash of stories on the theme but there is usually an emotive word or phrase which crops up in all the headlines: scrounger, fat cat, asylum seeker, hoodie, dodgy expenses etc Recently "gold plated" pensions supposedly awarded to public sector workers have been in vogue.

As an article just published on our main website ("Prospects for the UK State Pension") explains, government attempts to control the state pension are only part of the battle to stop the UK's long term finances collapsing. The growing amounts they pay to retired public sector workers pose almost as great a risk; the system is forecast to be in deficit by 14 billion pounds a year within the current decade.

Some economists and ministers call the final salary pensions paid to public sector retirees unaffordable and unjustifiable; a time bomb ticking under the already rickety national finances.

But union spokesmen defend the pensions referring to their members as mostly "low paid" and resisting calls for pension contributions made by their members to be raised and for pensions to be based on average career, not final salaries.

"Public sector workers already pay a sizeable amount into their pension schemes year in, year out," said one. "All workers deserve a good workplace pension, whether private or public sector."

Sounds reasonable but in reality the private sector pension system has been eroded for years under attack from public policy and low returns in the equity and bond markets (themselves largely the result of government interest rate policy). Low interest rates, touted as a great way to revive the economy, are actually a transfer of wealth from savers and pensioners (anyone who doubts this should check out the current annuity rates) to bail out debtors, including the government. Why should the public sector be shielded from these realities?

The argument that public sector workers are low paid no longer really stacks up. The Labour years were generous to public sector budgets and mostly went on increased salaries. 38.000 public sector employees get over £100.000 a year. The average pensions received seem quite low (see table below) in some jobs but these averages include people who have worked for a short time in the public sector and are not the rewards for full lifetimes of employment.

My own view is that the government should honour the commitments they have made to public sector employees so far - many of these have worked for much of their careers with lower salaries in times gone by when public sector pay did lag behind. In future though they should move, as many private sector, employers have, to defined contribution, fully funded pension schemes which do not pose a threat to future taxpayers.

Public sector pensions (England, Wales)
Worker	% salary paid*	Employer contribution*	Pension age*	Average pension
* Depending on scheme Source: Independent Public Service Pensions Commission report, government departments
Police	9.5% - 11%	24.2%	55	£14,000
Firefighter	8.5% - 11%	14.2% - 26.5%	55 or 60	£12,000
Teacher	6.4%	14.1%	60 or 65	£10,000
Military	0%	29.4%	55	£8,693
NHS	5% - 8.5%	14%	60 or 65	£7,000
Civil servant	1.5% - 3.5%	3% - 18.9%	60 or 65	£6,200
Local government	5.5% - 7.5%	13.20%	65	£4,044

Spoilt for choice - the next bubble to burst

2010-12-30T03:47:00.000-08:00

They say hindsight's a wonderful thing but actually, particularly when it comes to money matters, it mostly leaves you rueful and feeling slightly foolish. How come you didn't see that great looming disaster when all the signs were staring you in the face? For example, did you see this last recession coming? The various property crashes we've had in the UK over the years? The dot com boom turning to bust? Or did you spot before anyone else that Japan was going to fall from economic star to the land of the permanent slump overnight? Maybe you did. Because none of these things came out of the blue; there were plenty of warning signs and sceptical voices pointing them out.

It occurs to me that there are some great crashes in the making at this very moment. There are certainly plenty of booms going on. Surely some of these are going to come to a juddering halt and go into reverse causing mayhem. So as we turn towards the last week of 2010 what would you nominate as the most likely boom-to-bust story in the making? What will we be talking about in the next few years like we talk about Greece and Ireland or the Sub Prime crisis? Here are some candidates:
China -

A bit like Japan in the 80s - the turbocharged economy that just continues to move astoundingly upwards and the country that everyone thinks is the future. There are apparently 65 million empty unsold properties in China, making Spain´s million or so property overhang look pretty puny. This article is typical of the sceptical view The China Syndrome - A Building Bubble
Gold -

Up more than 500% in less than a decade. Dinner party conversations about how much Cash4Gold gave you for granny's locket. I don´t see it myself but many people are calling a gold bubble e.g. 11 signs that gold is in a bubble

US Dollar -

A more or less permanent and enormous trade deficit. A massive fiscal deficit and a central bank that prints money for fun. The mother of all bubbles? Scary YouTube video says yes The Dollar Bubble
Government Bonds -

Government bond yields in most countries like Japan, Germany and America have slid and slid as a decades long bull market in sovereign debt has barely paused for breath. Cracks are appearing now though surely?
The Euro -

Sceptics have called this a disaster in waiting since its birth but it hasn't fallen apart yet. Matter of time?

Oil and other commodities -

A two year high for oil - 93€ Are they having a laugh? That can't be sustained with the weak recovery we are having.

Or maybe you think none of the above; everything is cool. Of course, with the possible exception of the Euro which is very much a political issue, these bubbles - if that's what they are - are all related. A super dollar bubble that has been blowing ever bigger since the 70s.

For what it's worth I think the Euro will avoid mayhem and destruction because the politicians will do whatever it takes to avoid a collapse however much it costs their taxpayers. I don't think the high gold price is a bubble even though, short term, there is a risk of a correction as interest rates rise next year. Oil and commodity prices merely reflect the inflationary consequences of the policy choices made by the US and China which lie at the heart of the whole show. The question is not "will it all end in tears?" but when and who will start blubbing first. I am not even going to hazard a guess though I can easily see the US Treasury market unravelling before the great China crash.

Latest article on the Advoco website covers these sort of themes in a review of the prospects for investors in 2011 What Should You Do With Your Savings in 2011
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One Great Idea

2010-12-19T23:00:00.000-08:00

It's one of this little irritants of modern life - the ban on taking liquids through airport security. Unless you want to shrivel and dry up on your journey, it's a choice between buying a bottle of water from one of the shops on the departures side or seeing what those nice people from Ryanair (or whomever) are charging these days for a bottle of water.

Choosing the former option the other day as I waited to board my flight to Spain, I stumbled across the option of buying One Water from the Duty Free shop. It's spring water from Wales and, besides being considerably cheaper that the French stuff on offer from WH Smiths, all of the profits from its sale go to clean water projects in Africa. Specifically funding Playpumps - these are pumps driven by the power of a children's roundabout which deliver clean water from underground aquifers. A look at the website http://www.onedifference.org/ explained a bit more about the company and it's quite a story. Since it's been going since 2004 you may well have heard of it so I won't repeat the facts which you can read on the website, but a couple of things did occur to me:

- more and more charity, particularly relating to developmental and environmental issues, is getting interwoven with business. As an example look at the plethora of Fair Trade type logos you see in the supermarkets; this is straightforward commerce but with an ethical twist. The time when all green and anti-poverty campaigning groups used to instinctively line up against "big business" and hated multi-nationals seems to have passed. They have seen the benefit of harnessing the power of capitalism for their own ends. Good to see for someone like me who is a free market capitalist through and through but is also acutely conscious of environmental and poverty issues.

- as a general rule I find bottled water annoying and in fact somewhat immoral. I cringe at the amount of money and resources that is wasted on packaging, advertising, transporting stuff that is no better than tap water. Certainly anyone with any pretensions of caring about the environment or global warming should not buy bottled water. Maybe I am missing something but it's a view I have always held. Now that I have found a bottled water which grew out of a great idea and supports a great objective I can soften my opinion. I will still only ever buy a bottle if I have to, but I will always look for the One label. You can like One water on Facebook too http://www.facebook.com/onedifference.

Latest article on the website - Spanish pension benefits Full list

EU bonus curbs are bad for Britain

2010-12-14T23:02:00.000-08:00

Banker-bashing - it’s become a December ritual to rank up there with carol singing and Christmas lights. Investment banks announcing big bonus pots inevitably attract criticism of the “greedy casino capitalist fat cat” variety, particularly from politicians perhaps keen to deflect critical reviews of their own performance and economic management.

This year the EU has weighed in with some new rules limiting the amount of bonus that can be paid in hard cash and also restricting the right of the recipient to cash in all of their bonus for several years. It’s an easy sell for the Eurocrats politically – few voters are keen to see bankers getting big bonuses, particularly when they amount to rewards for failure (AIB which almost bankrupted Ireland tried to pay out €40 million in bonuses).

But nevertheless the new restrictions are a clear erosion of freedom – the right of private organisations to pay their staff how they see fit – and deserve some scrutiny. The excuse for their introduction is the “systemic” risk posed by banks; the idea that if banks pay their staff big cash bonuses, this will encourage excessive risk taking and sow the seeds of future bailouts and crashes.

However many studies into the subject have failed to find a link between bonus systems and risk taking at banks. I just read a great book about the collapse of Lehmans (“A Colossal Failure of Common Sense”). It is scathing about the bank but doesn’t mention anything about cash bonuses being the problem – in fact Lehmans always paid its bonuses mostly in shares, just the like the new rules propose. If it is felt that banks pose a systemic risk this should be tackled (and is being tackled) in the right way – requiring they put up a bigger capital buffer as a requirement of doing business – not in a politically motivated attempt to stigmatise bank employees.

There is of course a hidden subtext behind the unjustified attack which will undoubtedly contribute to an erosion of the City’s competitive position as a financial centre. Our European “friends” have long been envious of the power of London which was supposed to decline when the Euro came in but actually thrived. The financial crisis has been a great opportunity for left-leaning, anti-capitalist and unelected Europeans to lay into one of the UK’s main strategic industries. The British government should be doing everything possible to delay and block these new rules.

Latest article on the ADVOCO website Calculating the autonomo tax burden

‘Tis the season to pay Spanish taxes

2010-12-06T23:12:00.000-08:00

A rather dull topic this week but an important one for anyone with property in Spain, because the deadline is looming for declaring non resident taxes. All Spanish income tax declarations for non residents (modelo 210) have to be in by 31st December. The tax is collected either directly from the taxpayer’s bank account on the last day of the year or it can be paid in cash at the bank, with the completed modelo 210.

Resident property owners don’t have to pay this tax but it is worth noting that the Spanish tax office will not consider you a resident unless you have registered as such and filed at least one tax return (even if it is a “nil” return with no tax paid).

Also be aware that the system for non resident property owners who rent out their Spanish homes has changed. As in previous years the annual modelo 210 is not appropriate if you actually earn rental income – you are supposed to file quarterly form 215s. The change is that this year, for the first time, expenses “exclusively relating to the rental” can be claimed against the gross income. Rates (IBI), agents’ fees and advertising costs would fit under this category.

Back to the modelos 210 which non resident property owners have to declare if they don’t rent out. Full chapter and verse on the tax can be found on our website which has a special page (Spanish Tax Form 210) explaining all about it and giving details of our service where we will do it all for you for 30€.

Alternatively you can do it yourself - it is not a particularly complicated form to fill in and you can download it from the Agencia Tributaria’s website here. Remember that you have to register first before you declare (modelo 30). You pay it at the bank, but you will need to fix Agencia Tributaria identification stickers on the form before the bank will accept it. These stickers can be obtained from the Agencia Tributaria offices simply by showing your NIE (once you are registered with them).

The advantage of our service is that you can do it all online / by email even if you are not in Spain, and that includes the registration process. We even allow clients to settle our bill in pounds to a UK bank account.

Zapatero gets the message

2010-11-29T12:34:00.000-08:00

If he means what he says (a big if since he is a politician) it seems like the Spanish PM, Jose Zapatero, has finally got the message. At a meeting with business leaders to discuss reforms this week he said all the right things:

Zapatero accepts the need to accelerate reforms

He's talking about reforming pensions by February and restructuring the weakest savings banks by Christmas. In addition he says that regional governments, who account for about half of Spain's public spending, must start reporting their deficit-cutting progress every quarter.

Up until now he has dragged his feet on reforms, mindful of how unpopular they are on the left of his party and indeed with the electorate as a whole who I suspect mostly don't accept that things need to change if Spain is going to survive and compete. Now Zapatero talks about "accelerating reforms to the max" ... "whatever the personal cost". His new-found zeal as a reformer presumably owes its origin to the Irish crisis and the widespread view that Spain could go the same way ("The difference between Spain and Ireland is timing").

Another reason for urgency is the need to restore some credibility ahead of the first 4 months of 2011 when, according to Barclays, Spain and its banks need to raise 70bn€ in the bond markets, which they think will lead it to ask for a bail-out next Spring. Sounds plausible if you think Zapatero' reforms are too little too late, the Spanish banks are in worse shape than they admit and that austerity measures announced so far will push the economy back into recession. In this case now would be a good time to reduce your exposure to the Euro (or even short it if you are feeling brave) because this will be a calamitous bail-out too far for the currency to bear. On the other hand European leaders know this and may have a few tricks up their sleeves to ensure Spain pulls through e.g. I could easily see the ECB printing money to buy Spanish government or bank debt. Whatever happens it's going to be an interesting 2011.

Latest articles on our website: Spanish autonomo tax burden

The difference between Spain and Ireland is timing

2010-11-22T11:22:00.000-08:00

So Ireland finally caved in and went to the EU and the IMF for a loan. The point for Spain though, is will they eventually be brought down by the same pressures that did for the Irish?

The consensus appears to be no it won't. The markets and most commentators seem to accept that Spain is a different proposition and can pay its way. At an important bond auction last week, in the midst of the Irish uncertainty, Spain did manage to sell its latest batch of debt for an acceptable yield (10 year funding cost them 4.6%). There are good reasons to think that Spain is in a much stronger position:

Ireland's economy has shrunk more than any other in the EU economy during the crisis, shows no sign of recovering and the fiscal position of the government (excluding bank bail outs) is getting worse. Spain's economy has at least stabilised in 2010 and is at least not shrinking (Q3 GDP Spanish growth was 0%). The government's deficit as a % of GDP is narrowing to single figures and the government has set up major public spending cuts and tax rises to bring it down further.

Ireland was sunk by its banking sector more so than its public sector debt. In 2007 the Irish public sector deficit was the lowest in the EU at 25% of GDP and even with the crisis had only risen to just over 60% this year. However in 2010 the Irish deficit has ballooned to a remarkable 32% mainly as a result of the cost of bank bailouts, principally the AIB and the Bank of Ireland.

The markets just did not accept that the Irish could afford the guarantees given to these banks - the government had guaranteed 100% of their deposits and made some commitments to the bondholders of backing these bank. Ireland could not afford a bank bailout and get its deficit under control at the same time.

So, Spain in the clear? Not quite. There are some worrying similarities between Spain and Ireland's predicament:

- both economies are stagnating even before austerity cuts and tax rises have started to bite. Neither have the option of devaluing their currency to boost exports as they are stuck in the Euro.

- both not only had massive house price booms and bust they are both (unlike say the UK) still suffering the aftermath in terms of mountains of unsold properties dragging down prices

- Spain has its bank problems too. See Spain's economic crisis turns nasty

- Spain and Ireland have both lost control of their monetary policy so cannot engage in Quantitative Easing policies like the UK and US have done

- Spain is struggling to make its budget deficit-narrowing plans work (partly because tax revenues are stagnating and partly because the autonomous regions are not cutting spending to plan)

- if it were to suffer a double dip Spain would have nowhere to turn. In 2008/9 the government was able to spend its way to prevent the worst of the recession and even then it was pretty awful.

So if both economies are in the same predicament - deficits, austerity, stagnation, stuck in a Euro straitjacket - what sets Spain apart? The markets seems to accept that the scale of the Irish banks' problem set it apart. But I have my suspicions that Spain is more vulnerable than it appears on this front. The banks avoided much of the pain of the housing market crash by dodgy accounting and putting off foreclosures. They have in any case become the most reliant in Europe on borrowing cheaply from the European Central Bank. Another spiral down in house properties and an increase in repossessions - hardly outlying propositions - and the game could be up. Ireland today, Spain tomorrow? Watch the housing market.

Autonomos retain their expenses allowances

2010-11-15T23:01:00.000-08:00

I spotted this news article in the Spanish press:

http://www.europapress.es/economia/fiscal-00347/noticia-economia-fiscal-gobierno-mantiene-rebaja-tributacion-modulos-2011-pymes-autonomos-20101111123251.html

In essence the message is all in the title and the article doesn't add that much: the government keeps the 5% deduction for small and medium-sized enterprises (SMEs) and autonomos (self-employed) for 2011. This refers to a rule that can save autonomos money if they do their quarterly "modelos" correctly i.e. return a simplified "objective" declaration of their business profits rather than the full version. This allows them to report a taxable profit equal to income minus allowable expenses minus a further 5% of net income as an additional expense allowance. The idea is that the small business will have expenses which they cannot easily claim because of a lack of receipts or justification and this allowance makes up for it.

In a sense it is more than necessary because otherwise the system of what is and what is not deductible in terms of business expenses is quite harsh particularly when compared to the UK. There is a full guide on our website (autonomo expenses guide) but as examples :

- if a self employed businessman flies to London on business the flight can only be claimed as an expense if it is demonstrably 100% business-related. If the spouse travels or there is any day spent away from business then the whole cost of the trip is disallowed. The assumption is that the trip has been at least in part for pleasure.

- it is routine in the UK to claim for business lunches and entertaining but practically verboten in Spain

Reading the article, the authorities are making it sound like retention of the 5% deduction is a temporary measure because of the crisis. It could be removed when (if) things pick up for the Spanish small business sector. With Spanish GDP growth coming in at an invisible 0% for Q3 it looks like business needs all the help it can get.

QE2 and the soaring cost of fine wine

2010-11-08T23:20:00.000-08:00

If you think that the US Federal Reserve's announcement of a $600bn second slug of quantitative easing (QE2 as it has been dubbed) is just what the US and World economies need right now, think again. It is rare that mere monetary manipulation is the springboard for a solid and lasting cycle of productive economic activity. I will allow that an economy that has suffered a shock fall in its money supply, because of major banks going under say and taking depositors's cash with them, could do with an infusion of cash from the central bank. But the US and most of the World is not in such a position.

Bank bail outs and the last lot of QE have stabilised the banking system, at least for now. No depositor in the US or UK lost a penny. Money supply and the velocity with which it has been circulating round the economy, have been growing briskly on both sides of the Atlantic after an understandable slow down in the aftermath of the crisis, caused by a reluctance to lend, borrow, invest and consume in the private sector. Retail price inflation is positive and rising in the US (about 1%, much higher in the UK). The economic recovery is slow but what would you expect if the private sector is working off its excessive debts and banks rebuilding their capital?

So the new money is not filling a hole in the money supply, or warding off the supposed horrors of deflation or needed to refloat the financial system. The Fed chairman justified the extraordinary move by claiming prices are not high enough - he wants high consumer inflation and higher share prices.

“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending," Ben Bernanke

So the Fed is printing 600 billion to buy US government debt on top of the 1,700 billion it has already printed to make sure its citizens pay more for what they need to live on and in the hope of a trickledown effect from booming stock markets. But what will happen in practice?

A clue was to be found this week in news reports of a boom in fine wine prices and a new world record for a single bottle:

An 1869 vintage wine of Chateau Lafite-Rothschild was recently sold at auction in Hong Kong for a record 147,020 pounds, leading experts to warn that fine wines could soon become unaffordable. (CityAM)

And this is before QE2. The free money, printing press economics that are being followed by our monetary masters around the globe are predictably fuelling inflation, even though the main consumer indices are reasonably becalmed. The money is finding its way through to speculative property deals, emerging markets, takeovers, precious metals, rents, commodities, luxuries, art - the price of anything that isn't being held down by the deadweight of unemployment misery and industrial ruin.

A tidal wave of money has been unleashed supposedly because we are all suffering from low prices at a time when energy prices are rising sharply and food basics like rice, sugar and wheat are soaring in price. The fact that emerging markets and speculative investments are booming suggests that the excess liquidity is not being invested in real investment in the Western economies but is simply flowing abroad, jacking up the prices of essentials and causing chaos.

I think there is some sort of recovery taking hold in some of the Western countries and am not unrelentingly doom and gloom, but this latest piece of economic policy making beggars belief. I hope the UK doesn't follow suit. And I certainly don't expect a healthy round of balanced economic growth any time soon.

Latest article on the main website: Prospects for the UK state pension

More coffin nails for the Spanish economy?

2010-10-24T22:53:00.000-07:00

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 2^nd 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 "

http://noticias.lainformacion.com/noticias/la-nueva-ley-antitabaco-enfada-a-hosteleros-y-estanqueros_L35ilG1cO6AdcBznocQyv3/

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.

From our website -

Spanish tax forms explained

Is there such a thing as an autonomo free lunch?

2010-10-17T22:58:00.000-07:00

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 )

When will the Spanish pensions system collapse?

2010-10-09T07:35:00.000-07:00

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:

2000

Spain Working age (15-65) 27 million

Spain retirement age (65+) 7 million

Spain ratio - 4 workers to every pensioner

2050

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

http://www.un.org/esa/population/publications/worldageing19502050/)

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 (http://www.valenciaplaza.com/ver/10894/El-modelo-sueco-y-los-100-economistas.html) 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

10 reasons you've got to love the internet

2010-09-30T22:44:00.000-07:00

It's funny how it was only after the Dot Com bubble that the internet really took off for ordinary people. Lots of crumby online businesses came and went (bankrupt) and we were mainly left with Amazon, eBay and online travel booking. A lot of the good stuff has only really become ingrained since broadband became ubiquitous in the last 5 years. I couldn't believe it when I read YouTube was only 5 years old the other day; it seems to have been around forever. That site is one of my top ten reasons why the net is now ingrained into my life and doing without a connection would be unthinkable, like losing water or electricity. Here's my list (in no particular order) of 10 reasons the internet has made life better:

1. TV on demand

A really recent one this because it was unthinkable just a couple of years ago when there wasn't enough bandwidth to contemplate everybody streaming TV shows over the internet, but now with 4OD, iPlayer and countless others, it is routine to get almost any viewing you want, when you want. Now that these services are being improved and built into TV sets (Virgin already do it) you can never complain again that "there's nothing on". Annoyingly much of the UK material is not streamable in Spain.

2. Settling arguments

There used to be a time when petty arguments over silly things could fester unresolved indefinitely but now the ultimate resolver of disputes is on hand to hand out judgement. I once had a passionate dispute with someone who was convinced that 9/11 occurred in the 90s and it was only when I brought up (several) news reports that they backed down. I have lost plent of arguments in a similar way.

3. Travel

When did you last go to a travel agents? How about checking in online? How much do you think flights would cost today if the internet hadn't happened.

4. Business

The 1980s and Mrs Thatcher did a great deal for small business and entrepreneurs. The internet has done a lot more.

5. Music

The reason I love YouTube so much is purely for music. Think of any song by any artist in any era and it will be there. You can save your favourites and use it like a radio. There's also a ton of music you can download legally and freely. It used to be to discover new music you had to listen to the radio; now you can browse countless sites and see your favourites as well as hear them. And you can listen to any radio station you want.

6. Shopping

My sister has just published a book. It is fantastic and full of recipes for the sort of (mainly) British favourites that I used to enjoy as a kid. I thought I would buy several copies to give away. Problem - the list price is 20£ (it's a big glossy hardback) and the discounted price on Amazon around 13£ I think. But a quick search using Google's Shopping results section and a 7.99£ offer inlcuding delivery popped up. I bought three and they threw in a free book because of a special offer. The book is called Ramblers Rewards and the cheap bookseller TheBookPeople.

7. Blogging

Writing and reading other non-professional opinions is one of the ways the internet has made life more democratic.

8. Reviews

You never have to take a chance on anything these days, be it book, film, product, holiday destination etc. They are all exhaustively reviewed online.

9. Facebook

Say what you like about social networking but it is amazingly easy to keep in touch and make new connections using sites like Facebook.

10. Information for life

Well, of course, I couldn't go without mentioning sites like our's which provide the information you need for doing anything from paying your taxes to fixing your computer to diagnosing that funny pain you've been feeling in your big toe.

That's my list but I am sure everyone will have their own particular ways that the internet works for them.

Talking rubbish

2010-09-24T23:06:00.000-07:00

There are a few things about living in Spain that turn me from a mild mannered accountant into the most Meldrew-ish of Grumpy Old Man in a flash. Usually the bugbears relate to breath-takingly bad customer service (e.g. see Will Spanish Business Ever Get the Internet?) or something car-related (does anybody use indicators any more?). Recently though I think it is rubbish that has wound me up the most. Specifically the laziness of people when it comes to its disposal.

It seems that Spain had no equivalent of the Keep Britain Tidy campaign that I remember from my childhood. Chucking takeaway cartons onto the street, leaving bags and cans on the beach and throwing rubbish out of the car, seem to be perfectly accepted disposal techniques.

But what really winds me up is the people who either make no attempt to recycle or leave their rubbish on the road next to, rather than in, the bins. If you have some papers or plastic bottles is it too much to ask to throw them in the right container which is right next to the green bin?

What I find especially infuriating is the people who have gathered up their recycling (say bottles) in a bag and who, because the particular rubbish stop they have parked at does not have the right container, leave it by the side of the bins. It's like they are say "look I've done my bit collecting the stuff but do you really expect me to go to any trouble finding the right container".

And what of people who leave cardboard boxes beside the blue paper bins rather than crushing them and actually putting them in the bin. Are they that busy or feeble that they can't finish the job. I DON’T BELIEVE IT!

I really must take a lie down and stop getting so worked up.

How to save money on your Spanish non resident tax declaration

2010-09-20T14:29:00.001-07:00

The downside to owning a place like this ...

Judging by the increased demand we have recently experienced for our Spanish Tax Form 210 service, holiday home owners are starting to think about their tax returns. There's plenty of time as the declarations for 2009 are not due until the end of the year. For those Spanish property owners who don't anything about their tax obligations, I have pasted in an extract from the Spanish tax office website describing what has to be declared for non residents who DON'T rent out their properties.

For those that do understand that there is income tax to pay and wish to ensure they are on the right side of the law, how can the declaration be made as cheaply as possible? Well unfortunately there is no way (that I know of at least) of reducing the tax burden itself because it is based on a fixed percentage of the property's rateable value (see details below) without allowances or deductions. However if you have or intend to get a tax adviser to make the declaration for you there could be savings to be made.

Many people who do pay the tax use a paying agent to do the paperwork but that can prove costly if you haven't shopped around for a low fee option. This may be the case if you are using the lawyer who handled the original property purchase. How much should you pay? Advoco charges 30€ (upwards) and some other services are being advertised for not much more.

Or why not do it yourself? It sounds a bit radical but it is not so hard particularly after the first year invested in getting yourself organised. There is info on our site (Spanish non resident tax) and others including the government's - see below. If you have any questions posting a question on one of the Spanish forums will usually yield an answer.

Extract from the Agencia Tributaria website explaining the non resident tax charge:

The amount to declare will be that resulting from applying the following percentages to the assessed value of the property as shown on the Property Tax bill (IBI):

· In general, 2%.

· In the case of properties where the assessed value has been revised or modified since 1 January 1994, the percentage will be 1.1%.

This yield is calculated once per year, on 31 December.

If you have not been the owner of the property during the whole year, or if it has been rented for any period, only the proportional part of this amount is declared.

· Tax Return Form: 210, using the general section 210-A and entering 02 as income type.

· When to file the tax return: During the whole natural year after the date of accrual.

· Where to file the return: With the Branch of the Tax Agency or Administration belonging to the Tax Agency responsible for the area where the property is located.

· Tax rate: 24%.

Telefonica to call time on "All You Can Eat" internet access

2010-09-11T00:25:00.000-07:00

It seems like the telephone companies are starting to regret the way that internet access has always been charged. Since dial-up faded away and broadband came in, it has been charged at a flat rate by the Internet Service Providers regardless of how long the user is online or, more importantly, how much data they download; the "all you can eat" buffet model.

It does seem kind of ridiculous now that heavy users, streaming movies and downloading music and games 24/7, pay the same as the occasional user who is just sending a few emails. Particularly given that the latter may be adversely affected by the former i.e. light users subsidize heavy users but everyone suffers equally when the network runs slow at peak hours. From my experience this is early evenings with my Telefonica connection when I imagine a lot of kids are downloading stuff after school and people are illegally putting movies in their memory sticks for the night's viewing.

Telefonica's CEO Julio Linares has called the current situation "unsustainable" quoting figures that 5% of mobile internet users produce 75% of the traffic -

Telefonica wants to charge more to customers who connect more

It will be difficult to change the status quo however sensible some kind of metered charging appears to be in theory. People have got used to paying a flat rate and will not take kindly to feeling like they have to watch every minute they are online or, more likely, pay for every Byte they download.

It might be OK if the majority of light users got a big benefit from the new regime i.e. monthly bills halved (Telefonica's ADSL charges are very high when compared to the UK) but I suspect they won't. If they can get away with it the ISPs will be looking to increase overall revenues and only they will benefit (both from lower usage of their networks and increased charges from heavy users while light users pay about the same). We'll see but enjoy the free, all you can eat option while you can.

From our website: time to do your non resident Spanish taxes?

New corporation tax rate in Gibraltar

2010-09-04T01:08:00.000-07:00

With talk of austerity and budget deficits in most parts of the world, it is refreshing to be able to report on some good tax news. Being based on the Costa del Sol, my firm of accountants and tax advisers naturally has a lot of clients with interests in Gibraltar so we have to keep an eye on what is happening on the Rock. This Summer a new Income Tax Act has come into force.

The Act is available for download on the Gibraltar government website http://www.gibraltar.gov.gi

For companies the news is pretty good, because the long-heralded reduction in corporation tax has come into force and at an even lower rate - 10% - than had been anticipated. The basis of taxation has also changed from prior year assessment to self-assessment and payment after the company's year end. Gibraltar companies are expected to file accounts and estimates of their liability to tax within 6 months of their year end and pay the tax at the same time.

Most importantly for companies who are not run in Gibraltar or active there, the scope of corporation tax is only on profits "accrued in and derived from" Gibraltar itself. So if the company is based on the territory or makes money there, only those profits are subject to the new corporation tax regime. In addition interest, royalties and capital gains are not taxed.

Gibraltar used to be a popular place for foreigners resident in Spain to set up companies because of the existence of "non resident" companies which did not pay any tax at all. These have been abolished and all Gib companies are subject to the new regime wherever they are managed from or where they generate their income. But provided the company has no Gib activities ( or these are incidental - less than 22 days a year) or locally generated income, the profits of Gib companies can still escape tax. For individuals with international activities and income that can be booked through companies based anywhere, the low tax rate and the exemption of non-Gibraltar income make the Rock look an attractive option.

In Spain and need tax advice for a company or business (or thinking of setting one up)? Check out our website ww.advoco.es which has a lot of useful articles like Contracting in Spain and Autonomo Guide (self employment in Spain)

Praising Telefonica is simply not worth the risk

2010-08-27T02:27:00.000-07:00

I have always considered Telefonica as part of the enemy i.e. one of the organisations or systems in Spain which serves to make and otherwise peaceful and idyllic life so difficult and frustrating at times. Along with the banks, utility companies, tax office, certain shops and tradesmen, garages, public sector bodies and officials, they are the ones that drive you mad with their inflexible bureaucracy, third world service standards and unresponsive staff, while you should be relaxing and sipping a glass of wine in the sun.

I have had all manner of complaints with Telefonica (now rebranded Movistar as their mobile division seems to have become all important) in the past to do with billing, line faults and installation. Probably my fault for moving about and needing their services quite a lot. They seem to be typical of an ex-monopoly that hasn't quite shaken off the worst features of being a cosseted state giant.

That was until recently. I had begun to notice a change in their service. Two or three times they have been right on the ball getting things done quickly and efficiently. They even rang up to offer a reduced tariff which didn't seem to come with strings attached.

I was right at the point of writing a blog post praising the turnaround and to see if anyone else had noticed a leopard changing its spots. And then ...

They cut me off! Not out of the blue - I had asked for the line to be deactivated at the end of the month, repeatedly stressing the date - but nevertheless my office line has simply ceased to be. Many confused and annoyed clients with me trying to make do with Skype (internet is so far mercifully available). Well, by their past standards it wasn't a major crime but I did feel the familiar Telefonica rage welling up inside me. I am only glad I didn't give them a glowing write-up on the blog last week. They still have a way to go to get themselves in my good books.

Related - Telephone firms most complained about in Spain - http://www.elpais.com/articulo/madrid/Electricidad/telefonia/centran/quejas/consumidores/elpepuespmad/20100810elpmad_8/Tes

From the Advoco website -

Starting a business in Spain Spain autonomo classifications

Spanish tax strategies for married couples

2010-08-19T10:03:00.000-07:00

A little while allow the firm's website published a guide to the calculation of tax for married couples (Spanish Taxation of Married Couples) and it has prompted quite a lot of couples - or at least the half of the couple who do the tax stuff - to send in their queries.

Apart from the mechanics of the calculations, there have been a few proposals for cutting the overall tax bill by some restructuring of the couple's fiscal affairs. Often the question is "I've had this idea for reducing our tax bill; will it work?". People can get quite creative. I just wanted to comment on a couple of ideas:

Income sharing - often a retired or semi-retired couple will have a very uneven skew of income with one spouse earning almost everything. If some of the income could be shifted to the other spouse then that could save tax either by using up more of their personal allowances or shifting some of the couple's income out of higher rate tax. Obviously some sources of income are very specific to the person - like a pension or salary - but some deposit accounts and investments could be put in both names to divide the resulting income up between spouses.

Similarly couples where one spouse owns a business may be able to legitimately transfer some income to the other either by employing them in some capacity or, in the case of a limited company, paying a dividend to them.

A very specific idea I came across was the proposal to form a Spanish business partnership - Sociedad Civil (description of legal form here) - to take the place of a simple autonomo set-up. The husband was self-employed and earning a high and regular income; the wife earned nothing. The idea was that if they formed a partnership then they could say the partnership earned the money and then divide the proceeds between them as income. This could work, with two provisos:

- the partnership will cost more than a single autonomo to run thus taking away some of the tax savings from increased use of allowances and less higher rate tax. Primarily this is because both husband and wife will have to sign up for autonomo social security ( see Autonomo Guide) and also because there is more reporting to do. While a Sociedad Civil only has to submit one IVA declaration, each of the partners has to do quarterly income tax returns.

- the partnership has to be legitimate or at least not demonstrably illegitimate. For example if a lawyer sets up a partnership to practice law with his wife, who is not a lawyer, then that would clearly not be acceptable. If, on the other hand, the couple is doing an activity which both could plausibly be contributing to then setting up a Sociedad Civil is a perfectly acceptable route to follow. But the tax savings would have to be considerable to make it worthwhile which is probably why it is still quite rare.

New guide on our website - Spanish non resident taxes