Australia’s burgeoning black economy

By Leith van Onselen

The Turnbull Government’s Black Economy Taskforce is expected to release its final report in October 2017. While its interim report estimated the cost of the cash economy to be about $25 billion, the head of the taskforce, Michael Andrew, now believes that the black economy is worth at least $35 billion and potentially even up to $50 billion when activities such as money laundering and drug trafficking are taken into account.

Cash payments in sectors such as service industries were the focus of its initial recommendations, but the taskforce will also reportedly examine activities such as illegal gambling and black market cigarettes. From The Australian:

“Since I put the report out, when I was saying the black economy was worth $25bn, now I think it’s worth a minimum of $35bn and could be as much as $50bn. Briefings we have received on the illegal side of the black economy — the drug trade, money laundering — have led us to believe it is much larger than we first thought,’’ Mr Andrew told The Australian. Mr Andrew also heads the Board of Taxation, which advises the government on the development of tax policy.

“We have done a good job so far on the household component of the cash economy,” he said.

“In the final report, which goes to the government in October, we will focus closely on the illegal component of the black economy,’’ Mr Andrew added.

He said the taskforce would be working closely with government agencies such as the Department of Immigration and Border Security, the Australian Criminal Intelligence Commission, Austrac, Australian Federal Police and the tax office.

I can’t say I am surprised that Australia’s black economy has grown so large.

We’ve got a corrupted visa system that facilitates widespread exploitation of foreign workers, many of whom work for “cash-in-hand” below the minimum wage.

We’ve got loads of businesses like restaurants that only allow cash payments, thus enabling them to avoid reporting their entire sales proceeds to the ATO, or lower their annual turnover to avoid tax, including GST.

Meanwhile, Transparency International recently ranked Australia as having the weakest anti-money laundering laws in the Anglosphere, failing all 10 priority areas. This follows the Paris-based Financial Action Taskforce’s 2015 evaluation that Australian homes are a haven for laundered funds, particularly from China, as well as similar warnings from Austrac.

The end result is that the Government is losing significant taxation revenue, resulting in higher taxes being paid by everyone else (or lower services provided).

Let’s hope the Black Economy Taskforce closes down some of these rorts and restores integrity to the tax system.

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Unconventional Economist
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  1. it’s the biggest joke in the world, gardeners, plumbers, builders, restaurants, cafe owners, coffee makers……… goes on and on.
    And the Gov does f k all about it, as per usual.

    Most offer a 10% discount for cash,…….and save themselves 30%

    • +so many

      Not only do they not pay large amounts of tax, as a result of lower reported incomes they or their offspring (eg student payments) access various welfare payments they would not be otherwise entitled to.

      I happily pay (electronically) the GST on trade services so that they are forced to at least declare that. If they offer cash I say no thanks to them as they have shown themselves to be untrustworthy.

      I’d happily get rid of cash all together to solve the problem with these parasites.

      • sure. actually we are being played. IMO there should be no income tax and instead the govt ‘prints’ itself debt free allowance per annum and percent of GDP and works within that budget. Martin Armstrong has a well worked out Solution re a different way of dealing with govt and money. US did not have income tax until the fed reserve and managed, paid off debt. Countries way back would raise a tax only when they were warring. Some not paying tax… e.g. the negatively geared politicians, the corporations just not taxed, have economic growth etc while we taxed ones who cannot avoid it are cut back to serf level.

    • The Patrician

      The fact that the massively moronic Plutus scam ran undetected for over 2yrs right under the nose of the the ATO only goes to prove their incompetence (at best).
      You would have to be a complete idiot to get caught.

    • Do keep in mind though that’s its perfectly legal to pay and accept cash as payment and offer a discount if you like.

      Its not paying your taxes that’s the issue and if that’s what they are targeting then look no further than our head honcho for how to operate a nice black income.

      • This stuff is part of the game to eliminate cash under the guise it will stop black i.e. non taxed, activities.
        Its bait.

      • bolstroodMEMBER

        DPM & Glo
        I agree, a step on the path to a cashless society.
        and also a distraction, to take our attention away from Banks and MultiNational companies, and Billionaires which pay no

  2. #1 Outright legalise weed. Bring it under the Tobacco act and make sure the legal price is about the same as the current price (which hasn’t changed much in 40 years).

    There’s not one state in the US that’s legalised it that hasn’t suddenly had more money than they know what to do with. If smokes bring in 5bn, it’s reasonable to think weed would pull 2bn.

    Probably save us a fortune in electricity too.

    • +1

      But seriously what do they expect when the only way anyone seriouly thinks they can build wealth is by avoiding tax – NG and CGT for starters but trusts SMSFs etc through to Panama and Singapore marketing for the hoi poloi

    • It wouldn’t save on electricity as large scale commercial growing would still require it to be done indoors to maintain quality/consistency and short grow cycle.

      p.s. I don’t smoke but I support other people’s choice to partake of the devil’s lettuce

  3. The problem isn’t detecting the ML and RE rorts – they are in plain sight. No task force in the world can defeat the selective blind eye. Most likely, the task force will target illegal cigarettes and cash in hand transactions for the battlers. Perhaps they will use this to advance the argument for eliminating cash. Once they eliminate cash, then the “good rorts” can be kept safe in the bosom of the financial system.

  4. reusachtigeMEMBER

    The Black Economy is a great way to maximise profits. If there’s a market it should operate freely! I’m all for it!!! The growing chop chop market is a prime example of a great black market that is providing a cheaper service than the sick government controlled market. Same for assassins.

      • hence why they are running riot – look at Rudd, Gillard, Rudd and Abbott, Malcolm, Abbott (soon) shows. Something needs to be done.

  5. My 950-word submission concluded that “Reverse-engineering of current policy leads to the conclusion that we are trying to encourage the black economy.”

    It wasn’t cited.

    In retrospect, my conclusion from the robodebt scam was understated. I should have added: it’s safer to get started in the black economy AND draw on Centrelink than to work for a legitimate employer and draw on Centrelink.

    • “Reverse-engineering of current policy leads to the conclusion that we are trying to encourage the black economy.”

      It seems to me as well that the black economy is the result of a badly designed tax system.

  6. By “targeting” the black economy, all it means is a lot of these jobs would stop existing. Government raise a little bit of cash but hell would freeze over before they cut any spending. When spending someone else’s money, there is very little self discipline.

  7. The Patrician

    The ATO could identify billions of dollars worth of unapproved and illegal property sales by auditing residential titles records for FIRB compliance.
    50 dedicated staff with advanced data matching techniques
    The ATO choose not to.
    They are incompetent at best.

    • Makes one wonder what hope the ATO would have of applying the First Home Super Saver Scheme. If they can’t manage to run a title search and match with Residency status then they have zero hope of validating who is a genuine first home buyer.

    • So, they will legalise weed and tax it but not do the same with a product that exists to increase hygiene!

  8. OfficeboyMEMBER

    The authorities are so far behind this that it has become ‘ Alanbondesque ‘ politically and too hard to bring down.
    10% benefit you think ? Don’t kid yourselves. Why has there never been a look into people purchasing res property to
    renovate for $800K , stripping them back to base brickwork (undiscoverable) and building virtually a new home with say another $700K of undeclared cash and then flogging it 12 + months later – say 2.5 years for $2400K free of CGT . No property bubble does that continuously and consistantly for 25 years. $50B sound like a starting figure. They are outright dumb or outright afraid to front it.

  9. My local fishmonger just stopped taking EFTPOS. Cash only now. I don’t think he necessarily wants to avoid tax — it’s just that his business is struggling. As the consumer economy continues to deteriorate, more small businesses will go down this path.

    The irony is that as the government clamps down on small-time evasion (costing the tax payers more given the additional resources required) it will hasten the demise of many small businesses too. Sounds like a great result …

    In the Cayman Islands, meanwhile …

  10. Why not shift the tax onto something that can’t be moved or hidden and make it exemption free and unable to be used a deduction against other expenses? A land value tax would do the trick.