At the end of 2016, the government announced a special taskforce would be set up to target those pperating in the so-called Black Economy. The taskforce, chaired by Mr Michael Andrew AO, was due to report back in March last year. A consultation paper was subsequently released that contained 54 ideas and recommendations to tackle the Black Economy operating under the radar in Australia.
The Black Economy
Economists estimate that the Black Economy is around 1.5% of Australia’s GDP. An estimated $15 billion in federal tax revenue and unlawfully claimed welfare benefit payments disappears each year, which is a huge burden on the economy. Vulnerable workers are exploited by businesses who pay cash only. Indeed, Mr Andrew described the practice of taking cash-only payments as a “national sport”, saying it was a “huge problem”.
Many unwitting tax dodgers are students, migrant workers, and those in the country on a temporary visa, who are probably unaware they are in the wrong. However, there is a significant number of individuals who knowingly seek to avoid paying tax on income.
Recommendations from the Taskforce
Some of the recommendations in the interim report issued by the Black Economy Taskforce include better education so the general public is more aware of their tax obligations and greater cooperation between tax authorities and government departments. It was also suggested that wages should no longer be paid in cash, although an outright ban is unlikely to be enforceable.
Businesses in the hospitality sector are more likely than most to operate in the cash economy, but with so much red tape, some would argue that it’s not really surprising. To set up a restaurant in New South Wales, there are dozens of forms to full out and 72 licenses required. Not surprisingly, many have lost confidence in a system described as “too complex”. There are similar issues in the construction industry where companies are wrongly classifying workers as contractors to avoid paying superannuation, GST, and income tax.
The other side to the problem is that businesses operating in the Black Economy are undercutting legitimate businesses and forcing them to cut costs just to stay competitive. Mobile labour hire service companies undercut existing businesses and exploit low paid workers.
Criminal Tax Evasion
The Taskforce also looked at ways to tackle criminal tax evasion, which is rife. The report suggested that the ABN system needed to be strengthened, with specialist tax tribunals implemented to boost prosecutions.
Whether the Taskforce’s measures and recommendations prove effective remains to be seen.
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