The government has announced a new taskforce to look at the shadow or underground economy. This is a good thing. The “underground economy” is, I find, a better descriptor than the “black economy” since it refers to activity that takes place underneath the mainstream and its impact can undermine governments and society. It is hidden and stealthy and hard to find.
Since the last review of this activity in 2005 there has been some significant change in the way business is done. The biggest changes are: the increased use of credit cards; introduction of tap and go purchases; other payment processes such as PayPal; and increased volumes of online purchases, especially international transactions. None of these involve cash.
We hope this review considers issues from a societal point of view, not just looking at businesses as the culprits. If a business deliberately aims to do “cash only” to scam the system then go get ’em; they are dodging their tax, not contributing to society, and getting an unfair advantage, as they can undercut a competitor who is doing the right thing. Also by avoiding paying tax they are not contributing to government revenue that funds skills development, which is so important to our future.
We need to keep in mind that operating on a “cash only” basis is quite legal. A business may be “cash only” to avoid paying credit card fees. Having said that, we aren’t too sure that “cash only” is actually a money saver; managing cash, counting it, taking to the bank, and ensuring security is quite time consuming and costly in many situations. However, there are still many businesses where cash makes more sense to the customers as well as the business.
The underground economy can also consist of people and businesses who may not deal in cash but will do what is necessary, even if it is illegal, to not pay tax. This is done by moving money offshore or making false statements in tax returns. The system already targets these sorts of tax scammers and this needs to be maintained in a high-profile way to keep the community aware that tax dodgers will be relentlessly pursued and punished. We also have a very strong regime for hounding the largest companies that don’t pay tax, without legitimate reason, or shift profits to another country for tax purposes. This is a good thing and it should continue.
Where does the need for cash come from?
The other issue is where does the drive to do “cash only” to dodge tax come from? There are times when it can come from people outside a business—from customers and employees, or potential employees.
It is not uncommon for a business, especially those in trades, to provide a quote to a home owner who then asks, “how much for cash?” That isn’t a business trying to scam the system, that is a citizen who may very well be law-abiding and even very righteous about businesses that don’t pay their tax. That citizen often doesn’t understand that doing cash isn’t cheaper for a business unless they do it to dodge the goods and services tax (GST). By asking, they are contributing to the problem. We must get the message across that a customer dodging the GST is the same as a big business dodging their tax—maybe it’s not the same amount of money but it’s the same wrong behaviour.
We in small business also often have people apply for jobs and state they “will work for cash” or worse still, we will offer someone a job and they won’t accept the job unless they are paid in unrecorded cash. Normally this is related to payments from Centrelink or perhaps some tax or family issue where the level of income makes a difference to government payments or child support. This also has to be confronted and stopped. In these cases, the employer or the business owner is a victim of attempted fraud.
We need to review the way other countries manage their black economy in order to combat these situations. Some do so by making it illegal to not issue a receipt and also illegal not to take one. Do we need to do that in Australia? At least one country, Brazil, makes businesses lodge all their invoices with the Brazilian tax office, which must create administrative and data storage nightmares. We don’t believe these are the way to do things in Australia, and with the online and international sales becoming so prominent it probably fails feasibility tests.
Improving compliance and regulation
The situations mentioned above are obvious examples but there are also occasions where a business has to employ someone for the first time and they need to do so urgently. It is basically impossible to do so as you’ll get something wrong or it is just impossible to do what is asked. This can lead to a person paying cash when they would rather not.
People I have spoken to have all said they are concerned more about getting workers compensation coverage than they are paying the right way. Their real concern is stopping or managing injury, and that comes ahead of non-injurious compliance. The solution may be to provide a 1800-number for instant workers compensation coverage and at that moment we can also provide assistance in complying with workplace relations. But to do that we need to make the system easier by introducing a small business industrial award. I know the union movement will put its whole weight behind this idea as they see immediate benefit for workers through workers compensation coverage and easier compliance (just joking, they want to keep things complicated as it keeps them in a job—it’s sad but true).
The other area where we can make process simpler is superannuation. If we were to place super payments in with Pay-As-You-Go payments that go to the tax office, we would remove a very onerous task for small businesses, provide more certainty for employees, make life simpler for the superannuation funds, and provide another reason to not deal in cash. But this idea is being resisted by the superannuation industry, which doesn’t want to be too close to the tax office—which is a very good reason to do it.
The ongoing developments in software and online communications can make the processes outlined above easier, but also make compliance and regulation simpler. This includes the Single Touch Payroll system where employee payroll details are immediately transmitted to the tax office as well as to employees (this is still under development but progresses well).
There is also the E-Invoicing project being run by the Digital Business Council, of which I am chairman, and which is supported by the Australian Taxation Office. When this becomes commonplace, identifying non-compliers will become easier and finding an electronic paper trail may also be easier. The only people who should fear this are the dishonest ones; the systems we are developing should make the process easier, while also providing more certainty for B2B communications and financial activity.
We look forward to contributing to the work of the government’s underground economy taskforce. There are ways to make compliance easier and regulation simpler. Let’s catch the people who deliberately undermine our business community and our economy. Let’s educate everyone that they can be part of the problem or the solution. And let’s get on with business.