Portugal's black market goes mainstream

It's tough times for businesses in Portugal. As the government struggles to keep its economy afloat, it has raised taxes and imposed austerity measures that have hit the middle and lower classes very hard. Businesses have been brought to their knees by declining demand and higher government taxes. And as the government considers yet another tax increase to bail out the economy, businesses are being driven underground.

LISBON, PORTUGAL (Catholic Online) - There is a saying which goes, "if an airplane is in the mud pulling back on the stick will do nothing." The Portuguese economy is clearly in the mud, and the government is trying to pull back on the stick. But the end result is probably not what the government -- or anyone wants.

Faced with rising taxes and decreased consumer spending, many businesses are turning to the black market to stay afloat. Most transactions are no longer recorded because if they are, taxes will be due. As businesses dodge taxes, government revenue slips.

There are no statistics yet for 2011, but the statistics for 2010 estimate that at least a quarter of Portugal's GDP is underground and is not being reported. That means less taxes for the government, which needs the money to bail the country out from its current fiscal crisis.

International creditors are unrelenting in their demands that Portugal repay its debts. As they put the squeeze on the government, the government is putting the squeeze on businesses.

Businesses are in turn rebelling against the government by reporting only a fraction of their transactions. Of course, if the business is caught, the owners could face fines, closure, and even imprisonment. But for many, this is a risk they are willing to take.

When every business in the land is evading their taxes, it's easy for even honest shopkeepers to follow suit.

Only two nations in Europe are reputed to have a larger black market than Portugal and those are Italy and Greece, the only two nations that are more financially troubled than Portugal.

Now, government policy is becoming increasingly obsessed with collecting money. In fact, the problem has grown so bad that police are being used more to collect fines than to protect public safety. Routine checkpoints are established throughout cities in random locations. Vehicles are stopped while police check the drivers' papers, and look in the trunks hoping to find something amiss. If they do, the drivers hit with a fine -- a practice that is lucrative for local municipalities.

However, this only serves to further anger the people who say there are not enough police in outlying districts to ensure public safety. Burglaries, thefts, and violent crime have all increased as police concentrate on revenue-generating activities.

And so, businesses go underground with their transactions, and the people are following by transacting with them.

The great result is that the government is seeing smaller returns at a time when it needs those revenues to grow. Undoubtedly, economic and political instability are going to increase as the government, being whipped by its international financiers, looks to raising taxes yet further.

Unfortunately, this is a dangerous situation as the rebellious attitude in Portugal spreads and devours get more of the official economy. Naturally, if steps are not taken to improve the situation the government and Portugal's economy could experience a serious collapse with international repercussions.

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