Spain is enjoying a record high in tax revenue unmatched by its European peers after the pandemic forced clandestine trading activity out of the shadows.

The country’s net tax revenue is at its highest level since records began from January to November last year, jumping 15.9 percent over the same period in 2021 and providing an additional 33 billion euros to the public treasury.

Expanded tax collection is particularly welcome in Spain given its massive public debt burden, but whether it becomes permanent depends on the durability of changes in behavior inspired by Covid-19. Tax revenues also rose from 2020 to 2021, increasing by 14.9 percent or 27 billion euros over the same period, according to data from the country’s tax agency.

Putting the numbers in perspective, the Socialist-led government in Spain is seeking to raise annual sums of just €3.5 billion from unexpected taxes On banks and energy companies, it comes into force in 2023.

One reason tax revenues have risen is economic growth, with the government estimating this week that gross domestic product increased by more than 5 percent in 2022. Another big factor — accounting for half of the increase by some accounts — is high inflation, a factor that is omnipresent. But FT research shows that relative gains for Spain in 2021 outpaced increases for France, Germany, Italy, Portugal and Greece even when accounting for inflation.

Economists and Treasury officials attribute the difference in part to changes in the shade, or color of gray Economiea shadowy area of ​​unrecorded activities covering everything from informal farm workers to plumbers who fail to declare cash income and restaurants that push some wages off the books.

Concealing them for a long time facilitated tax evasion, causing panic among governments, but Covid and related economic support policies created new pressures and incentives that exposed the secret activity of tax collectors and public statisticians.

“People have realized during the pandemic that if they have legal contracts and are above ground, so to speak, they can ask the government for help if things go wrong,” said Angel de la Fuente, CEO of Fedea Economics. think tank.

Formalizing business and employment meant being able to access furlough programs in Spain for workers who were sent home but still received some wages, known as ERTEs. It also opened the door to liquidity support for companies provided by the government.

In October 2022, Jesus Gascon, Secretary of State for Finance, said: “If you are not on the radar, you are not getting help.”

Announcing its most recent data in late December, the tax agency said the higher tax revenues reflect increases in the collection of sales tax, personal income tax, and corporate income tax — all of which will show the impact of clandestine activity once made official. He emphasized that the new numbers set a record in the data set that extends back to 1995.

Ignacio de la Torre, chief economist at investment bank Arcano, highlighted the discrepancy in the employment figures. According to Labor Ministry payroll figures that do not include the shadow economy, the number of workers in Spain grew at an annual rate of 2.6 percent in the third quarter of 2022. But separate data from the National Institute of Statistics, which is based on surveys and includes underground work, showed that it was not There is no change in staffing.

“This may show that former workers in the underground economy are now organized,” he said.

Clandestine transactions – known as “pay in the B” in Spain – have also declined due to fears that cash could become a vector for Covid germs.

The pandemic has accelerated the trend of consumers using less cash. An European Central Bank study published in December showed that from 2021-22, the amount spent via personal card transactions exceeded purchases in banknotes and coins for the first time. The decline in cash use was sharpest in southern Europe, with Spain down 18 percentage points from 2019.

According to 2018 International Monetary Fund studySpain’s shadow economy was equivalent to 17.2 percent of GDP, a smaller share than Italy, Greece and most of Eastern Europe, but larger than in Portugal and the rest of Western Europe.

Informal activism grew in Spain in the 1980s and early 1990s following the tightening of tax rules, as the government sought to bring the country in line with European standards after the end of dictatorship and a return to democracy. The largest underground economies are Andalusia and the Canary Islands, two regions where tourism supports many restaurants and bars and gray payments tend to be common.

Although all increases in tax revenue are beneficial, a contraction in the shadow trade will not on its own remedy Spain’s unhealthy fiscal situation.

Public debt equals 116 percent of GDP, according to the Bank of Spain. Raymond Torres, director of macroeconomic analysis at Spanish savings bank Funcas, predicts that the country’s budget deficit will rise to 4.6 percent of GDP in 2023 from 4 percent last year, in part because of higher interest rates.

Torres said Spain cannot continue to delay a serious attempt to cut the deficit, but added that regional and national elections in 2023 mean that Prime Minister Pedro Sanchez’s government is unlikely to rise to the challenge.

Sanchez last week unveiled a package of measures worth 10 billion euros to ease the cost of living crisis. The third such support package for 2022, it included sales tax cuts, an extension of public transport subsidies, and a one-off €200 payment for four million households.

Torres does not expect an increase in tax revenue this year to match 2021 and 2022. “What we’re seeing is an increase in the size of the taxable income base, but not an increase in the rate of income growth.”

Nor is there a guarantee that the benefits of official payroll and digital transactions will continue for everyone. There can be setbacks in the underground economy. Some activities can go back to being unannounced.