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Black economy booming, killing firms

Wednesday, July 25 12:28:18

There has been a recent surge in growth on the Irish black economy, which is killing firms, ruining job creation and costing the State up to E5 billion, according to ISME today.

The Irish Small and Medium Enterprises Association called on the Government to bring in tougher sanctions on those who avoid taxes on goods and services.

It warned that rogue traders, cash only merchants and racketeers are 'killing' tax compliant small businesses and costing the state billions in unpaid taxes.

"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 14pc of GDP. ISME estimates would certainly put the figure at nearer to 16pc, which would equate to E25bn this year and the figure could be much higher. The amount of lost taxes is conservatively estimated at E5bn, which would go a long way to reversing the current exchequer revenue shortfall," said ISME Chief Executive Mark Fielding.

"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," said Mr Fielding.

He was also particularly critical of the social welfare system. "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."

"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.