Shadow Economy Booming In Australia

by Mary Swire, Tax-News.com, Hong Kong

26 October 2001

A study recently undertaken by the Australian National University's Centre for Tax System Integrity has shown that millions of Australians dodge taxes every year, either by working in the 'black economy', or by purchasing goods and services produced by it.

Friedrich Schneider, Valerie Braithwaite, and Monika Reinhart, the report's authors, revealed that between 4.81% and 8.8% of Australia's Gross National Income was earned by cash in hand workers, mainly employed in areas such as house and garden maintenance, teaching, and entertainment. This amounts to between $17.5 billion and $53 billion. The study also found that although those who earn more as a result of the official (i.e. taxed) economy work less in the black economy, they are far more likely to purchase shadow economy work in one form or another.

Following the release of the report, Ms Braithwaite observed that in the past, there has been little understanding surrounding the motivations of shadow economy workers and shoppers. However, the CTSI study makes a compelling case for the rising number of Australian workers who are slipping through the tax net, suggesting that the swelling shadow economy is symptomatic of a people overburdened by the tax system:

'If an increase in the shadow economy is caused mainly by a rise in the overall tax and social security burden, then this may lead to an erosion of the tax and social security bases and finally to a decrease in tax receipts. This will subsequently lead to a further increase in the budget deficit, or to a further increase of tax rates with the consequence of an additional rise in the shadow economy,' it explained.

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