Common Sense

We were shocked this week to hear that an English charity is under attack by the Spanish tax authorities.  Paul Cunningham Nurses is a registered charity in Spain; it was founded years ago by Jennifer Cunningham in honor of her son, Paul, who died of cancer at an early age. Paul Cunningham Nurses (PCN) provides free nursing and care to terminally ill patients and their families. It gets much of its funding through sales in several shops of donated clothing, DVDs, and household articles. We have taken several cast-off items to the shops to donate, and we have also made many purchases. I particularly like to stop in before I take a little vacation to northern climates, because I can usually find a couple pieces of warmer clothing in good condition there, that I can't find in regular stores here in southern Spain.

We first heard of the Paul Cunningham problem from friends who had read it in one of the free weekly newspapers. When we went out the next morning to do errands, we looked, unsuccessfully, for the newspaper, and we also stopped in one of the PCN shops to ask about the situation. The attendant gave us some information about the problem, but not in detail, and I was a little hesitant to sign a petition in support of the charity with so little knowledge, but I did. Since then I have found two written articles which generally say the same thing, so I'm taking them as a fairly accurate statement of the facts.

A year ago, one of the PCN shops was approached by a Spanish official from Social Security (Seguridad Social), who asked the two volunteer workers to show her their national identification and Social Security papers. Social Security is the system in Spain that provides national healthcare: either your employer pays your social security premium, or you as an independent contractor/freelance worker pay your own (and it starts at a minimum of 320 euros per month, I have heard from various sources).

The volunteer shopkeepers, older English women, did not understand the detailed Spanish and contacted the PCN accountant, who explained, in Spanish, to the Social Security representative that PCN was a registered charity, as indicated by a G above the door of the shop, and that the "workers" were volunteers and thus should not pay Social Security. The officer, however, levied a fine of 6,000 euros and demanded that the charity present all relevant paperwork to an authority in Alicante city--and accused PCN of violating the human rights of the volunteers by not paying salaries.

In due time the charity's official papers were taken to Alicante, the papers were accepted, and the fine was withdrawn. However, another fine was levied: 10,000 euros--for obstructing an officer in the carrying out of her duty.

PCN appealed the new fine twice, then heard nothing until recently, when a registered letter arrived saying that if the 10,000 euro fine--plus 2,000 euros in interest--is not paid within 21 days, the bank account of the charity will be embargoed and money withdrawn to pay the fine and interest until it is paid in full.

PCN is continuing its appeals, to the European Court, it says, if necessary. For the time being, as far as I know, PCN shops are still open and accepting donations, people are still buying--and signing petitions, and nurses are still attending to end-of-life needs of any resident of Spain--not just English or foreigners--who asks for help.

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When I first heard about this absurdity I thought, "It's because the Spanish system does not understand volunteer activities and charities." And it is true that the extraordinary system of grassroots fundraising by charity shops, lotteries and raffles, entertainment benefits, quiz and game nights, and all sorts of activities routinely offered by the British population here has no equal of which I am aware. But I have checked, and my English-Spanish dictionaries do show Spanish words on this topic. A charity organization is an institución benéfica or an organización benéfica. A charity shop is la tienda de una organización benéfica. A charity sale is una venta benéfica. A volunteer is un voluntario or una voluntaria, as in a volunteer army or to volunteer information. But the verb for volunteer is ofrecerse, to offer oneself, which does have the aura of self-sacrifice about it. And I didn't see anything at all about volunteer workers.

All of which does reinforce my feeling that the concepts of volunteering and charity are not something that Spaniards have in common with the Anglo world as I know it. But I do hope that common sense will prevail in this case, sooner rather than later.

Austerity Measures

Agreement between Spain and the European Union, the European Central Bank, and the International Monetary Fund--are those all the players?--has now been reached, and Spain's president of the government, Mariano Rajoy, announced a new series of austerity measures this week. Here's the list, as I interpret it, from an article in El Pais the day after the announcement. Since there was an awful lot I did not realize or understand about the Spanish economic system before the crisis and the announcement of improvement efforts, it can certainly be that I don't fully understand some of the measures announced. 

• Changes to IVA, the value added tax on almost everything, will certainly affect the most people--literally everyone. Spain having had "one of the lowest VAT rates in Europe," the current base rate of 18% will go up to 21%. I have previously written about the ins and outs of the IVA tax and I am sorry to see that now it is changing and becoming even more complicated. But I am glad to see that there will continue to be a reduced IVA for most food items, sanitary products, transportation, hotels, and admissions to cultural events--even though that category will go up from 8% to 10%-- and that the super-reduced IVA of 4% for basic necessities of bread and vegetables will remain the same. A subsequent story later in the week, however, alludes to several categories of the "reduced IVA" products being moved to the regular 21% category--primarily entertainment products like TV and entrance fees (Internet services?)--but not food.

• Government workers--including elected members of parliament--will lose their annual Christmas bonuses for, at least, 2012, 2013, and 2014. A long tradition in Spain, the Christmas bonus typically was equivalent to one month's salary, so in essence these people are taking a 7 1/2 percent pay cut for three years. 

•  Unemployment benefits will be reduced, starting in September, for new recipients. Nearly 25% of Spaniards are unemployed.

• "Green" taxes will be increased, including at least a 3-5 cent per liter hike in fuel taxes.

• The pension system will be reformed to make it more sustainable. It looks as though early retirement will be targeted.

• The number of municipal workers will be reduced by 30%. Mayors and city councilors will be required to make their salaries public. Provincial government will play a greater role in order to maintain public services evenly throughout regions.

• A popular tax deduction on the purchase of new properties will be eliminated.

• Taxes on energy will be changed. Details to follow.

• The government will continue reducing and even eliminating state-owned companies at the local level that "duplicate or even triplicate services."

• Subsidies to political parties, labor unions, and business organizations will be reduced by 20% --they have already been reduced 20% this current year.

Lest anyone think that Spain has not already taken some stringent fiscal steps, let me tell you some of the ways that the country is already cutting back spending.

First of all, the regional governments are paying some bills very slowly. This has been going on for months, but it is coming closer to home now. Local pharmacies were closed for at least two days in the past month in protest because they had not been paid by the Valencian autonomous comunidad for medications they had issued to customers.

Co-payments are being instituted for drugs and medications. Whereas you used to be able to have prescriptions filled for free, as long as you had the script from your local public doctor and a valid health car, consumers are now going to have to pay for part of the cost. How much? Some reports have said 10%; others imply more. A list of at least 400 drugs has been targeted, some for them for "routine but chronic ailments" such as diabetes, blood pressure, and heart disease.

Spain has cut down on those who qualify for free medical care. Undocumented residents, or those who have not successfully completed the process of acquiring accepted documentation (and I was in that category once) will no longer receive health services. Exceptions are made for certain groups: infants and children under the age of 18; pensioners, age 65 and older; pregnant and nursing women.

Life here is definitely becoming more expensive. Some will feel it more than others, but I think we will all feel it somewhat from now on.

Mathematical Puzzles and IVA, Spain's VAT

Spain has a VAT (Value Added Tax) of 18 percent, called IVA. That sounds high until you consider that Denmark's VAT is 25 percent. These make 7 percent or even 11 percent sales tax rates sound almost silly. But there are two differences in sales tax in the U.S. and the IVA I pay in Spain. The first difference is that IVA is charged by only one jurisdiction in Spain--the national government. In the U.S., on the other hand, sales tax can be charged by the state, the county, the city, or all of them--or some other government entity that you don't know about. Then, too, the sales taxes and various usage taxes can easily add up to 18 or maybe even 25 percent--as I am reminded every time I check out of a hotel at a conference.

The second difference in taxes is that in the U.S. consumer prices are listed without the tax, so that you generally get a receipt that shows the price of the item and the amount of the tax imposed on it, which adds up to a price that is probably higher than you thought and certainly higher than you wanted. In Spain, and everywhere that I know that uses the VAT, the displayed price of the item includes the tax. From the price you pay, the merchant presumably computes and sends the appropriate amount to the tax authorities. You don't have to think about it and you may not even know what it is. It makes it much more tolerable to pay a higher tax if the amount you are paying is not constantly thrown in your face.

Still, I noticed awhile ago that some grocery stores that I frequent include information on the receipt showing how much tax was charged. So I have been saving my receipts and trying to figure out the Spanish IVA taxation. Underneath the cumulated purchase total (the total), the amount you tender (the efectivo) and the change you get (the cambio) is a little chart like the one below.

BASE     IVA     CUOTA     IMPORTE
2,76        8         0,23           2,99
2,53        18       0,45           2,98
3,25        4         0,14           3,39

Looking at charts like this were probably what first made me aware that not everything was charged at the 18 percent rate. Some items were apparently charged at 8 percent; others at 4 percent. Of course I wondered which items belonged in which group.

It is not as easy to find out as one would think. Remember, the displayed price includes the IVA, and the real item price (the base, as I learned) is never shown--except on this receipt. When I had accumulated enough of these little receipts and finally remembered to examine them at home--and got out my calculator and magnifying glass--I confirmed that the cuota is the amount of the tax on its corresponding base, charged at the appropriate IVA rate. The importe is the sum of the base and cuota and would be the amount shown as the price of the item, if I had only bought one item in this category. Of course that seldom happens, so the game on the way home from the grocery store has become figuring out which items purchased add up to the amount of each importe, because if that can be determined I will know which items are taxed at which rates.

One day this week we went out just to buy water, and we came out of the store with only 11 items. That's a workable number, especially since there were five bottles of gaseosa (1,5 liter bottles of flavored water) at 26 centimos each and two cartons of milk at 1,22 euros each. Add to that a bottle of white wine at 1 euro exactly and one of red at 1,98. Then the fresh mushrooms at 95 centimos and the luxury purchase of Caesar salad dressing at 1,69. So I was able to figure out which items added up to the importe in the three categories above. 

This is the point where, if you are so inclined, you should do the math before scrolling down for the answer.








Here is a review and a clue:

18 percent. The normal or default amount, applied to every consumer purchase unless specifically exempted.
8 percent. Applied to alimentary and sanitary products, for animals as well as humans. Specifically excluded from this category are alcoholic beverages, soft drinks, tobacco, cosmetics, and products of personal hygiene.
4 percent. For items of "basic necessity," specifically
    - Bread and "cereals" for making it.
    - Milk, cheese and eggs. 
    - Fruits, vegetables, legumes and natural root vegetables.

The answer:

• The wine was charged at the default rate of 18 percent. Not a surprise.
• The gaseosa was charged at 8 percent. This is where I learned that gaseosa is apparently considered  water (even though carbonated and with some flavoring) rather than a soft drink (refresco), which would have been charged at 18%. Also charged at 8% was the bottled ready-made salad dressing, which surprised me, because I consider this a luxury rather than a regular food item (you can probably tell that this is not my salad dressing).
• Both milk and mushrooms were charged at 4 percent, as basic necessities.

I had accumulated lots of other receipts, so I took this opportunity to look through them to see if I could learn any more about the differences between basic necessity 4 percent items and the normal food rate items at 8 percent. The "cereals" for making bread do not include oatmeal or corn flakes--I guess they mean that "flour" is 4 percent. But cat food is charged at the same rate as general people food--I'm sure that Goldie approves. And fresh fruits and vegetables--of which I buy many--are 4 percent, though canned corn is 8 percent. The store where I buy most of my frozen vegetables doesn't provide this nice little accounting, so I don't yet know whether frozen is better (taxwise) than canned. On the other hand, that store tells me how much I would have spent in the old currency of pesetas! I hope that is information I never need to use.

The good news is that some eye drops I bought at the pharmacy also are just 4 percent and that food and drink consumed at a cafe, bar, or restaurant seem to be just 8 percent, regardless of whether alcohol is involved or not, though it may take a little more research to verify that. I was pleasantly surprised to see that my 4 percent purchases were a substantial part of my grocery basket, and now I can create a little game to try to keep those high, because they obviously are applied to foodstuffs that are not only basic but nutritious. By the time I went through most of my receipts, however, I had a headache and had consumed most of the afternoon. It's now almost dinner time, and I'm going downstairs for an 18 percent beverage.