The black economy is back in business
A range of under-the-counter deals that bypass the taxman are estimated to be costing the country €6.1bn in lost revenue, writes Roisin Burke
BLACK is well and truly back: for the first time in 15 years, Ireland's shadow economy is on the rise, and it's due to keep growing.
Our illicit economic activity adds up to €6.1bn lost to the Exchequer annually, according to Austrian economist Friedrich Schneider, whose research on Europe's €2 trillion black economy was published earlier this year.
Shadow (or black, or hidden) economy billions make up over 14 per cent of Ireland's GDP, by Schneider's reckoning, which is higher than ISME's 11 per cent.
That would mean that, each month, over half a billion euro is generated that the taxman doesn't ever get a penny of, or well over €1bn worth of missing-in-action VAT returns for this year alone. Brian Lenihan might find it very handy these days, amounting as it does to a quarter of what he has to find in the upcoming budget.
This hidden economy could grow by a further €350m this year, or up to 0.9 per cent, Schneider predicts.
"I would say it's definitely growing," said chief economist with Davy Stockbrokers, Dermot O'Leary.
"We're coming from an environment of 10 years of incentives to work and invest, which has controlled rising taxes. Now with rising costs and taxes, there's an almost incentive to not work, or to work but avoid tax."
Mr O'Leary points to the employment data in the CSO's most recent national household survey. While the numbers employed have, of course, plummeted since April 2008, the number of self-employed people has risen slightly up to April 2009. This suggests many are taking themselves off the tax radar. "There's an incentive to be in control of your own tax in this climate, and this has knock on effects for the fiscal economy in lost income," he says.
Owners of companies that operate above board are bitterly complaining that their business is taking a hammering in a flourishing "cash only" recession culture.
"It certainly has raised its ugly head recently," said ISME chief Mark Fielding. "We've seen complaints increase by about a third in the last couple of months.
"It's driven as much by the customer looking for a discount as the professional involved looking to save money by dodging tax.
"Construction has always been problematic, but there are increased incidences now of homeowners looking for cash jobs. We're hearing that our guys are up against that when quoting for a job and are being undercut by those that are quoting at the lower end of the scale with doing the jobs for cash in hand, and it prices legitimate firms out."
Incidences of paying employees off the books are also "more talked about lately", Mr Fielding said. "If a company has people on short time because of the recession, and then a job comes in, that extra overtime might be paid under the counter."
As the social welfare system is not designed to make it easy for people to dip in and out like that, the knock-on effect is they end up signing on and also working when they can, leading to millions in illegitimate dole claims, Mr O'Leary and other economists speculated.
For many that are out of work, former nixers have suddenly become a primary source of income.
"I make €400 a week from giving piano lessons," says an unemployed property conveyancing solicitor, let's call her Jane. "When my mother forced me to do my grade eight piano certificate all those years ago, little did I know it would end up giving me more of a livelihood than my law degree," she reflected ruefully.
"My husband is an engineer and is on a three-day week, doing anything extra that he can in handyman-type jobs the rest of the time."
Anything the couple earn this way is off-radar as far as the taxman is concerned. A more illicit aspect is creeping into some day-to-day commercial encounters.
The plumber who fitted your new sink won't take a cheque -- "that quote I gave you was for a cash job boss, VAT is extra".
Your childminder says she can't give you a receipt for tax anymore because she's taken herself off the register, and, she hopes, away from tax scrutiny, to save money.
Certain shades of grey exist in any economy, from consumers downloading their movies from peer-to-peer sites to bringing back a hoard of clothes from a shopping trip to the US. But now Mr Fielding says that people who wouldn't dream of stealing are prepared to fund those who do to keep themselves in the luxury goods they've become accustomed to in better times.
"Not only have incidents of shoplifting gone through the roof, but it's targeted. They're taking high-value items such as quality clothes -- there's a ready market for them," he claims.
In business, no-money contra deals between companies are increasingly used. A magazine might offer advertising space to a company in return for a professional service like IT support or accountancy, for example. But contra deals are also being used to provide unofficial staff perks.
"I can't give a pay rise in this climate," explained the MD of a media agency, "but I can pay for a skiing holiday under the guise of a business trip that can be expensed, or allow juicy 'mileage' claims -- fringe benefits that boost what a salary appears as on paper."
The catering vans that pitch up at festivals, matches and gigs are a further source of grievance for Mark Fielding's members. "Some of these are driving over on the ferry from elsewhere, then setting up their chip stall. There are very few Revenue people out on a weekend at the various festivals. Then it's a cash business, so there's another unfair advantage. They simply return back on the ferry on Sunday night."
Revenue claims it is on the case, however. "Special compliance districts throughout the country actively pursue intelligence and enquiries surrounding all aspects of the hidden economy," a spokeswoman told us.
Every cash business in a particular area or town might be visited, sometimes without warning, as part of these "compliance programmes".
"While the main focus is on businesses that use cash registers, all sectors that have cash receipts are monitored. This includes professionals such as doctors, veterinary surgeons, etc."
Ireland's black economy is in the halfpenny place compared to other countries, however. Italy's is notorious, estimated at 35 per cent of GDP, or €540bn. That was fine when the country's somewhat erratic economy was booming, but now that it is experiencing its worst recession in 30 years, illegitimate business antics are becoming almost as hot a topic as Mr Berlusconi's alleged sexual peccadilloes.
Italy's equivalent of the ESRI even said earlier this year that the country's black economy would help it get out of recession faster.
With this in mind, Mr Berlusconi recently relaxed the planning controls on domestic buildings, in a move said to be aimed at helping the country's millions of nixer builders and giving the black economy a timely boost.
"There's a certain inevitability about this in an economic downturn," Mr Fielding says of the Irish black economy. "The moment people are earning less there will be a rise in the black market."
Originally published in
