ANDORRA LA VELLA, Andorra – Citizens of this tiny, snow-capped mountain state between Spain and France are looking forward with apprehension to a New Year’s revolution that will force them to pay direct taxes.
A four-year economic slump has confirmed the end of decades of dizzying growth which meant that one of the smallest countries in Europe, perched on top of the Pyrenees, could survive mainly off a modest tariff on imports.
”What do I feel about paying taxes? Awful!” said shop assistant Samuel Diaz, a Spanish immigrant who sells cheap cigarettes and cigars to tourists. ”But for the first time ever I have Andorran friends who are unemployed.”
Among the first to pay taxes will be Joan Iglesias, whose two shops on the busy Meritxell street of the capital, Andorra la Vella, sell CDs, DVDs and video games to Spanish visitors.
As of next week he will be liable to pay a modest business tax of up to 10 per cent. ”I don’t think the politicians know what they are doing,” he said. ”What I really need is for my rents to drop, so I can handle the downturn in business.”
The business tax will be followed by a sales tax to be introduced in 2013. Income tax will come after that. ”We haven’t done this before, so we don’t yet know exactly how much we will bring in,” the Finance Minister, Jordi Cinca, said.
A decade ago 12 million people visited this pocket handkerchief country every year, attracted to the endless shopping malls, car dealerships and petrol stations that line its roads.
But by last year the numbers had dropped to 8 million and – for a country that gains three-quarters of its income from visitors who come to shop, ski or do both – that has brought a dramatic fall into recession.
Add in a burst housing bubble, which brought construction work to a jarring halt, and the economy has shrunk by 12 per cent over four years. ”Until 2007 we really hadn’t stopped growing for several decades,” Mr Cinca said. ”It was a permanent boom.”
Andorrans have been shocked by the eruption of unemployment in a country where annual employment growth ran at between 2 per cent and 16 per cent for all but a handful of years over the past four decades.
Companies only had to start making their books available for inspection last year, so working out the size of the economy has traditionally been a matter of calculated guesswork.
The population, officially at 85,000, but probably 10,000 to 15,000 fewer, is another mystery. Many of the immigrants are believed to have left after losing construction jobs but town halls have not been keen to strike them off their registers, because they are funded according to their population.
But half of the country’s population remains immigrant. Only after 20 years living and working in Andorra are immigrants allowed to apply for nationality.
The collapse is mainly because tax-free Andorran shops now find it hard to compete with large Spanish chains that can force suppliers’ prices down.
”It is a revolution, but a controlled one,” the Prime Minister, Antoni Mart, said.