Spain’s underground economy is reportedly 19% of GDP. Is it? Who knows? Whatever it is, Visa has its eyes on transaction fees while holding a carrot in front of the Spanish government regarding more taxable income.

Via Mish-modified translation from Libre Mercado, please consider Visa recommends Spain further limit the use of cash transactions.

The black market economic activity is beyond the control of the Treasury, and is one of the major objectives of the government during the current crisis to try to raise tax revenues. In 2010, Spain decreed the obligation to report all transactions greater than $ 3,000. In 2012 a ban was placed on cash payments in excess of 2,500 euros.

Visa Europe now recommends that the Government of Mariano Rajoy further restrict the use of cash to combat the underground economy and, thus, increase tax collection. Visa suggests a measure similar to that adopted in Italy, where the limit is set at 1,000 euros.

Why Does the Black Market Exist?

Step back for a second and ponder why there is a black market. Is it because taxes are too low? Of course not.

The black market exists in size because people are fed up with government confiscation of their hard-earned money that the government then goes on to waste on ridiculous pet projects and to bail out banks that are in trouble.

There will always be some fraud and corruption, but 19% of GDP, if true, is one hell of a black market. Rather than crack down on the taxes purportedly lost, I suggest eliminating the economic conditions that created such a sizable black market in the first place. The place to start is with an overhaul of the preposterously high VAT scheme.

Mike “Mish” Shedlock