Date posted: 30/09/2019 8 min read

Losing money to the black economy?

Many see cash-in-hand business as a victimless crime, but the black economy is a problem for government and the community.

In Brief

  • Australia’s black, or hidden, economy is worth 3% of GDP, according to the Black Economy Taskforce.
  • New Zealand researchers estimate that the self-employed under-report about 20% of their gross income to Inland Revenue.
  • The Australian government is cracking down on the black economy with a proposed limit on cash payments and other measures.

By Jo McKinnon

It goes by many names – the black, hidden or shadow economy – but it means the same thing: business done without telling the taxman. It includes everything from under-reporting of business income, working for cash-in-hand payments, illicit tobacco, unregulated gambling and drug dealing.

In September 2017, the Australian Black Economy Taskforce attempted to put a size on Australia’s hidden economy. Through its analysis of the under-reporting of business income, illicit tobacco, gambling, drugs, and counterfeit goods, as well as money laundering and underpayment of wages to vulnerable workers, it valued Australia’s hidden economy at as much as 3% of GDP, equating to A$50 billion in 2015-16 terms.

In 2018, researchers at the Victoria University of Wellington estimated that, on average, self-employed individuals under-reported about 20% of their gross income to Inland Revenue. This could represent forgone revenue of NZ$850 million per annum.

Many people see such cash-in-hand activity as a victimless crime, but it starves countries of tax revenue and, because it is done off the books, can exploit workers by paying them below-award wages with no superannuation or other protections.

In May 2019, Industry Super Australia reported that 2.85 million Australians missed out on A$5.94 billion in super entitlements in the 2016-17 financial year.

High-risk sectors for this ‘off the books’ activity include building (especially home repairs and renovations), couriers, cleaners and food businesses.

Australia and New Zealand are among the countries cracking down on the black economy. In Australia, cash payments to businesses are planned to be capped at A$10,000 from January 2020. In addition, the rules on reporting payments to contractors have been tightened, and electronic sales suppression tools that hide transactions were banned in late 2018.

Shadow economy as a % of GDPShadow economy as a % of GDPFigure 1. Shadow economy as a % of GDP. Click image to enlarge. Source: Shadow Economies Around the World: What Did We Learn Over the Last 20 Years by Leandro Medina and Friedrich Schneider, International Monetary Fund working paper, 2018, via

Australia’s hidden economyAustralia’s hidden economyFigure 2. Australia’s hidden economy. Click image to enlarge. Source: Black Economy Taskforce Final Report, October 2017. 

Even Germans do itEven Germans do itFigure 3. Even Germans do it. Click image to enlarge. Source: The Shadow Economy in Industrialised Countries, IZA World Of Labor, 2018. 

Funding the fightFunding the fightFigure 4. Funding the fight. Click image to enlarge. Source: Budget Review 2018-19, Tax Working Group.Funding the fightFigure 5. Funding the fight. Click image to enlarge. Source: Budget Review 2018-19Tax Working Group.

A$10,000 cash payment limit

A$10,000 cash payment limitFigure 6. A$10,000 cash payment limit. Click image to enlarge. Source: Currency (Restrictions on the Use of Cash) Bill 2019

How much tax lost?How much tax lost?Figure 7. How much tax lost? Click image to enlarge. Sources: Australian Taxation Office; Tax Working Group Secretariat; NZ Herald.How much tax lost?Figure 8. How much tax lost? Click image to enlarge. Sources: Australian Taxation Office; Tax Working Group Secretariat; NZ Herald.

Read more:

Why taming Australia’s black economy is important

Read more on the Black Economy Taskforce