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Low Tax Is Shrinking Ireland's Black Economy Says Study

by Jason Gorringe, Tax-News.com, London

25 November 2003


According to new research by the OECD, Ireland’s relatively low rates of income tax are causing the black economy to contract as a percentage of Gross Domestic Product.

The study, undertaken by Freidrich Schneider, research professor at Johannes Kepler University in Linz, Austria, compared 21 countries and found that Ireland’s black economy will account for 14.82% (13 billion euros) of GDP next year. In 2002, the same study forecast a level of 15.63% of GDP for this year.

The validity of Professor Schneider’s findings have been questioned by many groups in Ireland however and some have argued that the definition of the black economy used in the study is too wide.

For instance, the chief executive of the Chambers of Commerce Ireland John Dunne has estimated a figure nearer 10%, though he said the real level could be lower.

An Irish Central Bank study undertaken in 1997 which was the last official study undertaken by an Irish agency calculated the black economy could range from anywhere between 3% and 11%.

Meanwhile, and highlighting a clear lack of consensus on the issue, Robert Berney, chairman of ISME, the body representing Ireland’s small firms, told its annual conference the size of the black economy was between 5% and 6% and cost the economy around 6 billion euros per year.

Mr Berney took the opposite view to Professor Schneider, saying the black economy was growing at an “alarming rate” mainly due to the increasing costs being forced on businesses.

Yer pays yer money and yer takes yer choice!


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