Portugal's 'cash-in-hand' parallel economy is booming

Portugal’s grey economy, the parallel under-the-counter trade in goods and services, remains buoyant, reaching over 27% of the nation’s Gross Domestic Product last year.

The un-taxed economy, which keeps many from poverty despite its illegality, is running at the highest percentage since 2010.

According to a study by the Observatory of Economics and Fraud Management (OBEGEF), there was an increase of 0.7% over 2014, but the trend has been upwards since 1970, according to Óscar Afonso, the Observatory's president.

Afonso revealed that last year almost €49 billion was generated in Portugal’s parallel economy, the best performance since 2010’s €49.590 billion.

Back in 1970 the parallel economy accounted for only 10.17% of GDP, just €121 million but the trend has been positive over the years, increasing 0.4% annually on average.

This unregistered and untaxed economy does not show up in the national accounts and can be divided into five distinct groups: illegal economy, hidden economy (under-declared or undeclared), informal economy, production for own consumption and under-reporting due to a lack of data.

Portugal leads many of its peers too as the OECD average grey economy is just 16.4% of GDP.

The main consequences and causes pointed out by the Observatory's report can be "taxes on companies and families, social security contributions, the intensity and complexity of laws and regulations, the inefficiency of the Public Administration and the lack of credibility of State bodies in relation to the conduct of some of its representatives."

This last point is moot as the culture within many Finanças offices is oppressive with customers being treated as tax-evaders until proven otherwise. It then becomes a pleasure, for many a duty, to have as little to do with this organ of the State as possible.

The main benefit to practitioners is the feeling that crime pays: "It creates the image that crime pays. Those who do not pay taxes or commit fraud have greater competitive advantages in the market," said Carlos Gomes Pimenta, director of the fiscal council of the Observatory.

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