€5B Taxes Lost Due To Growing Black Economy

An independent organisation has called on the Government to introduce tough measures to address the significant increase in the black economy, which is costing the State €5billion annually in lost taxes.

The Irish Small & Medium Enterprises Association (ISME) warned that unless this issue was tackled immediately, legitimate businesses will go to the wall, jobs will be lost and the State will continue to lose a fortune.

According to ISME Chief Executive Mark Fielding: “As the country remains in recession there has been a noticeable increase in black economy activities, with catastrophic consequences for those legitimate companies. Consequently, hundreds of businesses are being forced to close with thousands of jobs lost in the process.”

While it is difficult to put an actual figure on the costs of the black economy, previous international estimates (in better times) suggest that in Ireland it amounts to 14% of GDP. ISME estimates would certainly put the figure at nearer to 16%, which would equate to €25bn this year but the figure could be much higher. The amount of lost taxes is conservatively estimated at €5bn, which would go a long way to reversing the current exchequer revenue shortfall.

Fielding continued: "The ‘nixer’ culture, in particular, is very much alive and well and there has been a definite shift towards a ‘cash only’ shadow economy. This is particularly evident in the construction and maintenance sectors, where there are increased incidences of ‘jobs for cash’, completely undercutting legitimate companies, who in many instances report that potential clients are demanding that they pay ‘off the books' to save VAT.”

Criticising the Social Welfare system, he said: “The attractiveness of Ireland’s Social Welfare system is also contributing substantially to the ongoing problem. As the system is not designed to make it easy for people to take irregular temporary work, the effect is that individuals end up signing on and also working when they can, leading to millions in illegitimate dole claims. With rising costs and taxes, there's also an incentive not to work, or to work but avoid tax. The system itself therefore offers a significant incentive to operate within the shadow economy, encouraging undisclosed employment without taxes or regulations, while claiming assistance from the state”.

The Chief Executive added: “It is also vital that there is an immediate clamp down on racketeering and rogue operators as evidenced by the level of seizures of contraband, and yet the massive amount of illegal goods that are available in the marketplace, which is costing the exchequer millions of Euro per annum.”

"The level of black or unobserved economy activities depends on the incentives and opportunities to cheat. It is vital that the Government reduce the incentives to take business underground, by reviewing tax rates and public utility costs, by deregulating the labour market, addressing social welfare fraud and cutting red tape and a total revamp of the department of Social Protection,” he added.

In conclusion, Fielding outlined that it is imperative that the State facilitate businesses to compete on a level playing field, by eliminating black economy operators, through an immediate clamp down on racketeering, social welfare fraudsters and by sending a strong message to potential rogue operators that their actions will not be tolerated and that serious penalties will be rigorously enforced.

(BMcN/KMcA)