Geoffrey Yiu provides insights on the 2017 Federal Budget and how it proposes to shed light on the 'black economy'.
The interim report of the Black Economy Taskforce (the Taskforce) was released last night as part of the Federal Budget 2017 for public comment and consultation. The report estimates the cash economy to be around 1.5 percent of our gross domestic product, or $25 billion. The black economy results in reduced income and consumption tax revenues (estimated at $10 billion), as well as higher welfare payments (estimated at $4 billion) due to the understatement of income.
The black economy refers to people who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax obligations. The black economy can also include those engaged in organised crime, including those who engage in the production and sale of prohibited goods.
The Taskforce has found black economy activity is widespread in labour-hire companies (e.g. cleaning, fruit picking, abattoirs), cafes and restaurants, hair and beauty, building and construction, and child care services.
The economic and social implications include a reduced tax base, an unlevel playing field for cash versus non-cash participants, and worker exploitation (e.g. pay is below the minimum wage and non-payment of employer obligations).
Furthermore, the black economy undermines confidence in the fairness and equity of the system, and can impact community attitudes to tax compliance more generally.
Initial recommendations are:
Recommendations being considered further include:
Reforms to address the black economy will help level the
playing field for small and medium enterprises and protect vulnerable
employees, as well as contribute to a wider process of cultural change.