Gray economy in the land of grayness


Zdravko Saveski

A few days ago it was announced that all future cash payments will be limited to 500 euros. That amount is higher than the monthly income of the larger part of the population. And that part of the population rarely buys goods and services over 500 euros. The simply have no such purchasing power. Therefore, this measure will not cause any significant disturbance in their life. And the measure is still important, because it aims to reduce the gray (shadow) economy in Macedonia.

This measure is a good reason to discuss some situations around gray economy. The first dilemma that comes to mind when referring to the term “gray economy” is whether it may not be more appropriate to use it as an assessment of the state of the whole economy, rather than just for the part of the economy that is not taxed. Our economy for almost half a century is stagnant, it is gray. Hence, is it not appropriate to regard it as a gray economy precisely because of the grayness that governs it?

A good part of the discussion about gray economy is about undeclared work. It is undoubtedly an important aspect. It is important not only from the point of view of the state’s income, but also from the point of view of workers’ rights. Bosses do not report their workers at all, they give some of their salary “in cash”, “in an envelope”, and they hire them through job contracts instead of employment contracts. Since in such a case no contributions are paid in full or in part for workers, this means that the future pension of workers will be lower, and in some cases workers will be deprived of the possibility of exercising the right to healthcare insurance.

Lately, it seems that paying part of the salary “in an envelope” is particularly increasing. Finance Think found that in 2017, 17.8 percent of workers, who have a formal employment contract, received their salary in an envelope. The data of the Center for Research and Policy Making is even more alarming. This research center found that in 2016, up to 44 percent of employees received hidden salaries, i.e. salaries “in an envelope”.

These data vary greatly among themselves. But what they unequivocally show is that the occurrence of payment of a part of the salary “in an envelope” is significantly practiced. Even if the figure of “only” 17.8 percent is more accurate, it alarmed that one in five employees in Macedonia received part of their salaries “in an envelope”. With a great deal of certainty, it can be argued that this practice is significantly more prevalent in the private sector and, hence, in the private sector, more than just one in five employees receive an “envelope” salary.  The data from the Finance Think Report that even 62 percent of workers insured on a minimum wage receive an “envelope” salary is also very important. If so is the practice of payment of part of the salary “in an envelope”, then it is high time for institutions to seriously get to work.

But do they really want to? One of the institutions that needs to fight this reduction of state incomes and future workers pensions is the Labor Inspectorate. One of the first problems this institution faces is the insufficient number of employees. According to the Rulebook on systematization of jobs in this Inspectorate, 304 jobs are envisaged. Even in the publication of this Rulebook in 2015, it was noted that out of these 304 job vacancies, only 204 were filled. That is, the Inspectorate has one third less staff than necessary. But instead of completing the number of employees according to the systematization rule in the following years, the number of employees in the Inspectorate was further reduced to 190 in 2019.
And all this happens as the number of all kinds of Prime Minister’s advisers grows, for slacking off and doing no work at all, with quite attractive amounts of money in salaries and allowances! If there was enough money in the budget for up to 63 advisers for PM Zaev, how come there isn’t enough for hiring new employees in the Labor Inspectorate? Why is the number of employees in the Labor Inspectorate even more diminishing if the estimates for the gray economy in Macedonia are that it draws 20-30 percent of GDP, sometimes even more than that? If the fight against gray economy is really wanted, it is necessary to double the number of inspectors in the Labor Inspectorate. And the number of additional employees that are slacking off, and the huge problem with gray economy, only show that the labor inspectorate needs more staff. Reducing the percentage of gray economy will exceed the budget funds for hiring new labor inspectors!
I will point out another important aspect of gray economy (and foreign investments), which the establishment wants to completely ignore. It is about illegal financial outflows from developing countries, including Macedonia. The Ministry of Labor and Social Policy last year drafted the Strategy for formalizing the informal economy. But in this document, this problem is not even mentioned as one of the most common forms of informal economy. Although it notes tax evasion as a problem.

The US-based organization Global Financial Integrity has been publishing reports of illicit financial outflows from developing countries in the past few years. In 2015, the organization’s report caused considerable interest among the Macedonian citizens. And rightfully so. Because the data showed that from 2004 to 2013, 5.2 billion dollars were illegally pumped out of Macedonia, or annually, 516 million dollars! Stop here for a minute and look at these figures again. How remarkably huge is this amount of money pointed out by the former National Bank Governor Petar Goshev in his column called “A handful of unscrupulous robbers are plundering Macedonia”.

The title is completely right! And the comparison of the amount of illegal outflows with the amount of foreign direct investment speaks volumes. In the same period of ten years (2004-2013), the total amount of foreign direct investments in Macedonia amounted to 3.8 billion dollars, significantly less than the amount of illegally outflow funds of 5.2 billion dollars. Reduced by annual average, in the same period, foreign direct investments amounted to $ 348 million annually in Macedonia, while $ 516 million were illegally flowing out.

Ignoring this problem does not mean that it does not exist. Money flowing out of the country and their non-taxation means that the state is deprived of huge tax revenues. Huge tax revenues that can be put into the function of developing the country and reducing the poverty of the population. In this context, the introduction of measures such as the limitation of cash payment up to 500 euros can prove to be a halfway measure, a sort of an excuse, that something is being done about the gray economy, and, in the meantime, the bosses, especially the biggest ones, are allowed to accumulate additional wealth through non-taxation of revenues.

Whenever it comes to solving the problem with gray economy and in terms of introducing progressive taxation, it should not be seen as a goal in itself. If the government improperly disposes of state and public money, then the legitimacy of tax incidents in the eyes of the public immediately goes down the drain. What are we paying taxes for? For Ruzin Junior to cash in 600,000 denars annually for “counseling” Zaev? This is the land of grayness – for the majority of the people! But the bosses and the ones in power are living to the fullest with the money of the ordinary people!

Views expressed in this article are personal views of the author and do not represent the editorial policy of Nezavisen Vesnik