Federal Budget 2017 Insights: Shedding light on the 'black economy'

Budget 2017: Black economy

Geoffrey Yiu provides insights on the 2017 Federal Budget and how it proposes to shed light on the 'black economy'.

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Budget 2017 Insights: 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.

What is the ‘black economy’?

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.
 

Why is it a problem?

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.
 

What are the interim recommendations?

Initial recommendations are:

  • Extension of the Taxable Payment Reporting System that currently applies in the building and construction industry to contractors in the courier and cleaning sectors from 1 July 2018
  • Ban on the manufacture, distribution, possession, use or sale of sales suppression technology (which can untraceably delete transactions from electronic records), with effect from the day of Royal Assent of the enabling legislation
  • One year of additional funding ($32 million) for Australian Taxation Office audit and compliance programs to 30 June 2018.
     

Recommendations being considered further include:

  • Australian Government contracts to be limited to firms with a good tax record and who are not engaged in bribery or corruption 
  • Tax and other incentives for small businesses who adopt a non-cash business model 
  • No deduction for cash wage payments, unless all reporting and withholding obligations have been met, such as issuing payment summaries 
  • Rationalise business registries and strengthen business registration and verification arrangements
  • Greater cooperation between federal, state, territory and local governments 
  • Tax literacy modules to be included in vocational education training, small business courses and in new migrant communities

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.

 

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