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Tuesday, 23 September 1997
Page: 8256

(Question No. 1818)

Mr Barry Jones asked the Treasurer, upon notice, on 16 June 1997:

(1) Is he able to provide the comparative estimated size of the black economy in (a) Australia, (b) the UK and (c) New Zealand.

(2) Is he also able to say whether material has been published which indicates that the introduction of a goods and services tax has impacted upon the black economy; if so, what.

Mr Costello —The answer to the honourable member's question is as follows:

(1) Estimates of the size of the black economy can vary greatly, depending upon the definition used, and the methodological approach taken. Any estimate is very reliant on the assumptions underlying the analysis.

(1) (a) In a recent report from the Cash Economy Task Force it was noted that: "Currently, there is no official or reliable estimate of the size of the Australian cash economy or the revenue foregone. Academic studies estimate the cash economy to be between 3.5 % and 13.4 % of GDP. Using 1995-96 GDP figures as a base and an effective average tax rate of 23%, these studies suggest that the annual amount of income tax revenue foregone could be between $3.9 billion and $15.1 billion."

(1)(b) Different methodological approaches for measuring the black economy for the UK, using 1970s data, have produced estimates ranging between 2 to 3 per cent of GDP.

(1)(c) I am not aware of any published estimate of the size of the underground economy in New Zealand.

(2) The extent of the black economy in any country is likely to reflect a number of factors, including the culture and attitude of the population towards paying tax, as well as the nature of the tax system itself. Addressing the impact of the black economy will involve a range of measures, including consideration of tax base issues. It is not sufficient to look at only one solution to the black economy because focusing on any one area in isolation would give an incomplete picture. Empirical evidence on the impact of measures to deal with the black economy is subject to considerable uncertainty because of the practical difficulties associated with accurate measurement in this area. However, there are strong conceptual grounds to believe that a broad indirect tax would increase revenue collected from the proceeds of the black economy, compared to an indirect tax levied over a narrower base.