Illegitimate trading costing jobs in compliant businesses.
Over €5 billion lost in taxes.
‘Nixer culture’ must not be accepted.
‘Rogue traders’ must be hit with tougher sanctions.
ISME calls for national campaign to highlight damage to economy.
ISME, the Irish Small & Medium Enterprises Association, has issued a warning that the ever-present and growing black economy could be as high as €25 billion, with a loss of €5 billion in unpaid taxes. It is creating havoc for legitimate business and stopping SMEs from creating jobs. The Association called for a concerted effort by the administration to publicise the damage being caused by black market activities and use zero tolerance when dealing with rogue traders, with a new focus by Revenue, Gardai and the judiciary on catching and punishing black market operators.
According to ISME Chief Executive Mark Fielding, “As a nation we need a sea change in relation to tolerance of black market activities. Turning a blind eye to illegitimate trade is still part of our culture and must change to protect jobs and businesses. A national campaign to inform people of the cost of illicit trade is a priority. The campaign on insurance fraud was reasonably successful and a similar drive against the black market is called for”.
“No longer can we tolerate the thriving ‘nixer culture’ where there has been a definite shift towards a ‘cash only’ shadow economy. We need a cultural shift that makes consumers understand the risks they are taking when hiring illegitimate traders, the impact their choices have on the local economy and the illegal activities money spent in the black economy often funds.”
It is difficult to put an actual figure on the cost of the black economy, however, based on previous international estimates* and ISME observations and reports from members, suggest that in Ireland it amounts to 14% of GDP. This equates to in excess of €25bn. The conservative estimate of taxation lost to the exchequer is €5bn. Therefore, for every 1% positive change in consumer habit, €50 million is added to the State income.
“Tackling the shadow economy needs to be a key feature of the Action Plan for Jobs 2016 and ISME is requesting that a fully funded awareness campaign is initiated immediately to change the culture of tolerance and acceptance of the black economy.”
“SMEs have cut their margins to the bone and are working long hours in an attempt to survive. However, they cannot compete with non-compliant operators who can offer ‘knock-down’ prices on ‘knock-off’ goods.”
Examples from around the country are:
A convenience store which will not sell a cigarette for two to three weeks, when a consignment of smuggled cigarettes arrives in locality. This has also an effect on other sales in the shop, as footfall drops.
A filling station which cannot compete with low priced diesel, obviously laundered and sold as legit.
A contractor undercut on construction jobs due to a ‘competitor’ involved in social welfare, VAT and wages fraud, without insurance or health and safety precautions for ‘off-the books’ employees.
The level of black economy activities depends on the culture, incentives and opportunities to cheat. It is vital therefore that the government, through its agencies, accurately monitor and police those rogue businesses and reduce the incentives to take business underground, by reviewing tax rates and the increase in public utility costs, deregulating the labour market and cutting red tape. It is no coincidence that countries with a relatively low tax wedge and less regulations have the smallest black economies.
Fielding was also particularly critical of the social welfare system: “The attractiveness of Ireland’s social welfare system is also contributing substantially to the problem. As the system is not designed to make it easy for people to take irregular temporary work, leading to individuals signing on and also working when they can, costing 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/black economy, encouraging undisclosed employment without taxes or regulations, while claiming assistance from the state.”
To address the problem, ISME calls on the Government to introduce the following initiatives:
An awareness campaign to increase understanding of the adverse impact of the black economy on product quality, health and safety of consumers and ‘staff’ and on the very existence of many businesses affected by rogue traders.
Awareness campaign to demonstrate the effects on government revenues and the subsequent provision of public services.
Improved enforcement of laws and regulation to prevent black economy activities.
Penalties for those caught operating in the black economy should be more severe and highly publicised.
Revenue should make visits to new traders for educational and risk assessment purposes.
Review the Social Welfare system to ensure it is always pays to work. The system cannot act as a disincentive to taking up gainful employment.
Stronger focus by the Department of Social Protection on checking the legitimacy of claims.
Co-ordinated and collaborative approach by State Agencies charged with investigating and eliminating black economy activity.
Greater cooperation between state agencies and their international counterparts to prevent cross-border illegal activities.
“A reduction of the black economy must be a priority. While the traditional methods of detection, enforcement and punishment have been used for generations, the overall effect is negligible, as evidenced by the figures. Tackling the general culture of acceptance must be the starting point for any new initiative. This can be achieved through use of a media and general education campaign,” concluded Fielding.