Rising Taxes

EU citizens are well aware of the financial stress the Euro is in. There are many factors that can be pointed as causes to this situation, ranging from the still ongoing financial crisis to the speculation against the euro to a fundamental breakdown of the EU Dream as pointed by Gideon Rachman in this FT article.

Hit particularly hard are, obviously, the less prepared countries such as the now famous PIIGS, of which I belong the the P. I am certainly not the one to judge the analist that, in the coziness of his office came up with such brilliant acronym but I am certain one or two fancy acronyms could be made with the name of his employer.

Anyway, it is now a reality that EU countries had to react with severe austerity measures to balance their finances as a result of diminishing revenues and same or increasing expenditure budgets. In the case of Portugal such deficit skyrocketed from less than 3% to more than 9%. In simple words this means that the Portuguese Republic is spending 109 Euros per each 100 it generates.

Putting all financial “sophistications” aside there are only  three things that can be to correct this problem of spending more than what is earned:

1 – Cheat. Well this didn’t quite worked out for  Enron in 2002, all the financial banks and institutions in 2008 and Greece in 2010. So this is a no go solution.

2 – Sell more stuff.  This would be the ideal solution. But where are the buyers for what EU in general and Portugal in particular have to sell? I keep asking this question to everyone I know? What does a country like Portugal produce? What is the structure of Portugal’s export balance sheet? Holidays? Maybe.  Cork (not really at only ±450 Million Eur per year accounting for less than 0.25% of Portuguese Exports). I will write a post in this matter. Well, at least for the time being and to have immediate effect this seems very hard to implement and there are structural changes that need to occur. There are many novel initiatives in this matter with Portugal being a leader in renewable energies (EDP Renováveis is the worlds third largest renewable energy operator, with the largest being Iberdrola, a Spanish company.what a coincidence being the two countries under pressure and part of the PIIGS acronym). My company FeedZai is also taking a part in this opportunity.

3 – Reduce expenses. This seems to me the most effective short term measure that can be taken. In my simple life, whenever money is short I simply stop expenditure of more frivolous items. As simple as that.

Now, countries and companies in all their “infinite wisdom” have many other tools at their hands such as borrowing as if there was no tomorrow or simply raising taxes on their citizens but these fundamentally just delay the structural imbalance. Countries like the PIIGS did just that, first they borrowed more money than what they could generate and since international markets told them that the party was about to end (i.e. no more cheap loans) these countries had to go the second way, i.e. raise taxes on their citizens as the only way to boost revenue. If the first was wrong the second was the only option since there are simply no buyers for what these countries produce.

So, for the time being I am willing to sacrifice and dully pay my increased taxes as I believe this is the only possible short term shock. However, what I cannot accept is that I have to pay more taxes for the problems created by those that borrowed too much and produced too little. From now on, I have made a resolution to denounce and confront all those that complain about their salaries and ask credit to buy the newest TV, all those that complain about their low salary and do not abdicate their two hour lunch every day, all those that complain about their salary and have the latest fashion clothing, all those that complain about their salary and don’t want to work extra to guide the PIIGS our of the swamp their are in…

What about you? What do you think?