Activity in the 'black economy' is rising with some €340m lost every week in the economy while €3.4 billion bypasses the Revenue Commissioners every year, according to small and medium enterprise group, ISME.
ISME warned about ever increasing levels of black economy activity, which threatens to undermine legitimate businesses, threatening jobs and livelihoods in the process. The Association warned that unless immediate action is taken, legitimate businesses will close and jobs will be lost.
According to ISME Chief Executive Mark Fielding, there has been a marked increase in black economy activities during the economic slowdown, with numerous companies complaining to ISME that they are being undercut by rogue operators.
"It is extremely difficult to put an accurate figure on the actual cost of such activities and estimates range from 7.5 per cent to 15.8 per cent of GNP. ISME estimates that core black economy activities could account for up to 11 per cent of GNP, which would equate to over E17.7bn. The amount of unpaid taxes alone is conservatively estimated at E3.54bn, which could be used to substantially reverse the current exchequer revenue shortfall."
There are many reasons for Black or Grey economic activity such as, the social welfare system and its benefits, the high cost of doing business, the high rates of VAT, the increase in stealth taxes, the huge administrative burden and regulations together with the low rate of detection in Ireland.
"Whether we like it or not, Ireland has become an expensive place to run a business and many companies are being forced into the shadow economy to generate cash flow simply to survive. Legitimate companies who are faced with these same costs and regulatory burdens have their businesses and livelihoods threatened by black economy operators who continue to undercut them through non payment of taxes or non adherence to regulations on health, safety and environment ", continued Mr Fielding.
"Ireland is one of the few OECD countries with an unlimited duration for social welfare benefits. Also inflation makes access to welfare based housing and other benefits more attractive than gainful employment. Our welfare system, in some circumstances, affords dependent householders a higher standard of living than those who work. This situation offers a significant incentive to operate within the shadow economy, encouraging undisclosed employment without taxes or regulations, while claiming subsistence from the state."
Sectors that are particularly affected include the construction industry, the childcare sector and the private security industry. However, ISME help-line enquiries and anecdotal evidence suggests that other sectors are beginning to feel the consequences of rogue operators.
"The level of black or unobserved economy activities depends on the incentives and opportunities to cheat. It is vital therefore that the Government 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, by deregulating the labour market and cutting red tape. It is no coincidence that countries with a relatively low tax wedge and least regulations have the smallest black economies," he added.