Are you part of the shadow economy and don’t know it?

Article published 15 August 2022

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ACCEPTING cash-only from customers, paying workers cash-in-hand and not declaring sales are the most common examples of the 43,000 tip-offs received by the ATO last financial year.

The shadow, or black economy refers to activities that take place outside of the tax and other regulatory systems. The ATO estimates that the community misses out on around $11 billion in income tax and other taxes such as the GST each year as a result of the shadow economy.

Topping the list of industries about which the ATO was tipped off were building and construction, hairdressing and beauty services, cafés and restaurants, road freight transport, and management advice and related consulting services. Tip-offs from New South Wales topped the ATO’s list with over 13,400, followed closely by Victoria with 11,500 and Queensland with 9,200.

The ATO is telling Australian citizens and residents that they should not facilitate the shadow economy.

“Every dollar of tax dodged is a dollar that can’t be used for vital services like health and aged care. We’ve all witnessed over the past couple of years how much the community relies on these critical services,” ATO Assistant Commissioner Peter Holt says.

Mr Holt clarified that it’s not just businesses the ATO has its eye on.

“We know that many customers also demand to pay in cash and ask for discounts to avoid paying tax, and we also know that many workers are demanding cash especially where there is a shortage of labour. Our message is – regardless of which party is driving the behaviour – it’s illegal and we’re on to it.”

Not on the ATO’s list and not included in the $11 billion tax revenue forfeiture are the proceeds from crime. The illegal drug trade in Australia, for example, is worth $10.3 billion, according to the Australian Criminal Intelligence Commission (ACIC), which estimates the consumption of methylamphetamine, cocaine, MDMA and heroin through the National Wastewater Drug Monitoring Program.

Tax revenue forfeiture based on the GST alone would be $940 million, money that could also be used for vital services, a pay increase for aged care nurses and personal carers, for example.

But the same principle that applies to tax dodging applies to welfare fraud. The Government doesn’t regularly publish statistics about welfare fraud. The most recent information CPSA could find was for the 2008-2009 financial year, when Centrelink recovered $113 million. Its budget at the time was $86.6 billion. So, the fraud rate was negligible at just a tiny bit over one-tenth of a per cent.

However, that was the rate for discovered fraud.

The story goes that back in 1996 when the green plastic $100 note replaced the grey paper note, the Martin Place headquarters of the Reserve received regular visits from retirees wanting to exchange old for new notes. Commercial banks just didn’t have enough new $100 notes on hand.

This story is essentially one of welfare fraud, where someone of pension age realises that for every $1,000 kept under the mattress, they will receive $3 more in the pension, or $76 a year. That certainly beats current term deposit rates.

What it also does is reduce the budget available for essential services on which all Australians rely.

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