The rise of the 'underground economy'
By Jason Buckland, Sympatico / MSN Finance
Of all the people I know who got laid-off these past eight months or so, the running joke has always been, “Well, I guess it’s cash jobs only from this point!” – a playful nod to collecting your maximum employment insurance benefits while still making a little under-the-table money without the government knowing.
As it turns out, while they may not necessarily be avoiding the EI task forces, not everyone is kidding.
An Austrian professor has generated a series of estimates for how big “underground” economies – defined as “the legal production of goods and services, but withholding tax and social security payments” – have become in eight of the world’s richest nations. And surprise, surprise, the numbers are growing.
It’s thought now that underground economies account for somewhere in between 12-15% of Canada’s gross domestic product, up from the year before. In fact, there’s reason to believe all eight of the countries profiled for this thesis will continue to see an increase in off-the-books work in the years to come.
While Italy is tallied as the highest proprietor to informal work (at more than 20% of its GDP), the trend is even more rampant in the developing world as street vendors and cash-paid labourers dominate markets like India and other regions of Asia.
In Canada and the U.S., underground workers generally mean off-the-books maids, gardeners and “gypsy” cab drivers, according to the Wall Street Journal. The phenomenon isn’t nearly as prominent yet as it is in other parts of the world, but with employers slashing jobs and families’ incomes vanishing, it’s at least conceivable the pattern could continue to grow in the Western world.
Economists have, of course, been stressing the negatives aspects of underground economies for years.
“Informal businesses often don’t pay taxes, and they routinely lack the capital and expertise to be as productive as big enterprises, leading to less innovation and lower standards of living,” the WSJ writes. “Since informal workers lack health benefits and other safeguards, they have to save more for emergencies, resulting in less casual spending that further drags down (economic) growth.”
Still, you probably know someone who takes a few cash jobs on the side because, hey, there are a lot of people who could use some cash on the side these days. That idea led to my favourite take on the theory, a reader comment on the Financial Post’s blog site:
“So if the underground economy is 10-15% of (the) GDP, and the outright illegal economy is similar in size, are we 20-30% better off than the official numbers indicate?”
Posted by: shug | Mar 30, 2021 8:45:11 AM
Very savvy, add in contractural kickbacks, government corruption, 'free' gifts, fudged expense accounts, bartering, swaps, internet auctions, garage sales and good ol' outright fraud...then you've probably got it about right.
Posted by: Brian Sloan | Mar 30, 2021 9:51:49 AM
The trend away from filing taxes on paper to filing taxes online reveals a difference. There appears to be a direct link between putting in tax returns and payments online and succumbing to the temptation to report less tax and pay less tax. Save the environment and spend less on tax.
Posted by: cynicalso | Mar 30, 2021 10:18:32 AM
The fact of the matter is that this practice should not be condomed by anyone. "Its let"s beat the Taxman syndrome" which in effect creates a downward cycle as more people try to evade paying tax the more taxes have to go up to pay services. I have advocated a solution which would negate this problem. Eliminate income taxes for individuals and increase consumer taxes by the appropriate amount to offset the loss. The underground economy has to surface somewhere and in so doing would pay the apprpriate tax. Eliminate the excess CRA staff dedicated to personal income tax and transfer them to corporate H.S.T side to ensure corporations submits their collection of the consumer tax
Posted by: Ron Krause | Mar 30, 2021 11:51:22 AM
The Underground Economy estimated at 12-15% of Canada's GDP is understandable when one considers the amount of taxes we pay in this country. Our Provincial Government in their wisdom now proposes Harmonizing sales tax in 2010,thus again making more every day articles more costly for the average citizen. In these bad economic times when people are losing their jobs and having a hard time just paying their bills this Asinine Government wants to introduce another new Tax Grab. Oh yes and voted themselves a raise in pay but not wanting to increase the minimum wage. Canada is most heavily taxed country of all the G 7 countries,yet they continue to tax us more. I am all for the Underground Economy due to our incompetent Government.
Posted by: Dausen | Mar 30, 2021 12:23:18 PM
I believe that in these tough economic times the government should make everyone pay the same taxes. As everyone knows, from small business to big corporations they pay considerably less, than normal people like you and I when it comes to tax time. I know personally friends of mine that run small businesses and they pay easily half the income tax that I have to pay being an employee. When employee people feel cheated by their own government from over taxation, they will do whatever it takes to evade Revenue Canada which means "working under the table". The only way for the Gov. to catch this is they have to start doing alot more audits and going through businesses "books". Since the downturn in the economy there has been alot more people recieving social funding such as E.I., welfare, ect. and now with less people paying taxes the government is going to have to increase taxes on the middle class again, which could eventually be the straw that breaks the camels back!
Posted by: Reg | Apr 1, 2021 12:40:11 PM
Could this work!!!
Abolish all taxes! But One.
One tax only! Tax the Dollar
Just take the money at the source! At the bank.
For every dollar!
Federal Government 5%
Provincial Government 5%
Municipal Government 5%
Government Coffers 5%
There you have it! 20% of all money in the economy! We all must keep our house in order.
Now there is NO underground economy, and everybody pays the same tax!
That is FARE!!!!
So if you want a Buck it will cost you $1.20. or whatever is the amount deemed necessary
To operate this country.
The government can now run on ½ the work force and collect its taxes daily from the banks.
Why must all things be so difficult!!!!
Posted by: lotusman | Apr 2, 2021 3:00:31 AM
...wonderful idea reg...now how many government departments can we get rid of with your
plan...look at the $$$$$$$$$$$$$$$ savings....lol
Posted by: justice | Apr 2, 2021 10:05:17 AM
Send back the refugees in double the hoards. Kick them off welfare and then if they have kids like in 3rd world country they can starve them instead of my kids I don't even have yet because I cant afford bus fare to get to a girlfriend to go on a date I can't afford while refugees are always getting 1st picks and comming dead last at my taxes expense "WITH GIRLFRIENDSSSSSS AND WIFES BABY MAKING IRESPONSIBLY". Blood suckers have fun and games until they have to pa for it! What is Canada trying to prove? That we want another rcession? Why am I paying to keep Ali babas wifes at home baby making while he gets my job and what should be my poom pomm as I suport that crap Canada stinks now! This is satans system for sure. No moral fiber.
Posted by: justice | Apr 2, 2021 10:19:24 AM
If thete is no job nor room nor time for me there should be no time or money or jobs for them.
Damn modren day so called immigrants Refugees bloodsuckers. My parents could have NEVER nor would they want to do what these conartist imigrants are doin. These actors and thieves of lives are paid 10,000 dillars to make babies in a city in Canada that I wont namto be my equal ? In what way is equal ? get to the back of the line and stop acting like inocense has any corilation with your "I no speak english untill I am offerd money " bullS*it exuse because I know more of the invaders will rush in and pluck more than we can keep up wich is why this country is no longer beautiful and not really free Canada as I made it , knew it . I go through hell in the 80s paving the way and those "New Commers" stealing my polished work and I am still left behind as they get jobs I asked for before they came off the boat? Invaders get city and provincial jobs for" ALL THE WRONG REASONS" claiming
Posted by: justice | Apr 2, 2021 10:24:28 AM
stop mailing money to bail out china they already make our flags yet wont hire me because I am not Chinese nor do they have to hire me but if we do that to them they say racism? Tell them stop making weapons and them they willl have money for lfes great things. Money for smokes booze and drugs but no money for rent ehh? sounds famiiar . They have it good better then me dont believe the hype ! they own canada and your job selling poisonus food and fake tooth paste for your dogs and cats and you tooo!