STOP ROGUE TRADERS
In association with ISME |
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Mark Fielding,
CEO ISME, The Independent Business Organisation. |
Undetected black economy activities are seriously threatening the livelihoods of many small business owners and must be tackled as a matter of urgency. Mark Fielding argues unless there is remedial action taken legitimate businesses will close and jobs will be lost
It is extremely difficult to define exactly what constitutes the black economy, or shadow economy, as it is sometimes known, as invariably activities associated with this area go largely unreported. Economists for instance would define the black economy ‘as that part of total economic activity, which is excluded from the official measurement process’. From a business perspective I would define it to include both the proceeds of illegal activities - trade with stolen goods and so on - as well as the uncounted proceeds of legal activities, typically when income is not declared for tax purposes.
BLACK ECONOMY DETRIMENT
The size of the black economy is difficult to gauge and there is very little research or information available on the extent of the problem in Ireland. A number of studies have attempted to establish a cost with a study by the Central Bank in 1997 estimating that black economy activities could account for up to 11% of GNP or the equivalent of €14 billion in today’s monetary terms. The amount of unpaid taxes alone would be estimated at €3 billion, which could be used to substantially fund infrastructure and other state projects. There is also the significant cost of increased expenditure on social welfare and other spending costs and the threat posed to the jobs of those employed in legitimate businesses.
Evidence would suggest that the number of companies operating in the black economy is on the rise and is likely to increase further. This is as a consequence of the ever-increasing bureaucracy and regulations imposed on business and in particular the significant increase in business costs over the last number of years, with production costs on average increasing by 30% in the last three years alone.
LIVELIHOODS THREATENED
Whether we like it or not, Ireland has become an expensive place to run a business and many businesses are being forced into the shadow economy simply to survive. This is having serious ramifications for legitimate companies who have their businesses and livelihoods threatened by black economy operators. While this is not to be condoned, the high cost environment is a factor and having a double effect on legitimate companies who are faced with these costs while being undercut by black economy operators.
An example of sectors that are particularly affected would include the construction industry, the childcare sector and the private security industry. Legitimate companies in these sectors not only have the difficulty of recruiting potential employees, but also have the more immediate threat of competition from unscrupulous employers operating in the black economy and under-cutting the cost of providing the service. The impact is to take business away from genuine compliant companies.
CLAMPDOWN ON ROGUE TRADERS
The level of black economy activities depends on incentives to cheat and the opportunities that exist. It is vital therefore that the government and the revenue commissioners accurately monitor and police those rogue businesses and reduce the incentives to take business underground, by reviewing tax compliance costs 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 least regulations have the smallest black economies.
It is also imperative that there is an immediate clamp down on racketeering and rogue operators as evidenced by the high level of contraband, laundering of diesel and the massive amount of illegal goods that are available in the marketplace, which is costing the exchequer millions of euro per annum. It is also incumbent on the Department of Justice, in association with Gardai, Revenue and other state agencies, to co-ordinate their resources to identify individuals, companies and particular sectors who have tendencies to operate in the shadow economy.
URGENT ACTION
In conclusion I believe that to guarantee a level playing field for legitimate businesses and their employees it is imperative for the Government to take appropriate and sustainable action against those operating in the black economy thereby sending a message to potential rogue operators that their actions will no longer be tolerated.
| GETTING TOUGH ON ROGUE TRADERS |
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To address the problems of a black economy ISME would like to see the Government introduce the following measures:
- The immediate introduction of regulatory impact assessments of all new legislation, in particular, how it affects small businesses.
- A radical review of the current taxation environment and how it influences individuals to enter the black economy.
- Increased co-operation and sharing of information among all the state agencies with responsibility for actively investigating the black economy.
- Greater cooperation between state agencies and their international counterparts to prevent cross-border illegal activities.
- A high-level public campaign outlining the consequences of participating in the shadow economy to clamp down on illegal operators.
- Adequate penalties should be enforced on those caught operating in the black economy.
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Author: Mark Fielding is the CEO of ISME and has assisted in the start-up
of more than 300 companies prior to taking up his current role.
Published in the September 2007 Issue of Irish Entrepreneur
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