Cash in hand: how big is Australia’s black economy?

The Australian government has announced a taskforce to “crack down on the black economy”, with a panel reportedly to consider measures such as removing the $100 note from circulation and limiting cash transactions above a certain limit.

So what is the “black economy”, and what is it composed of?

In her press release, the minister for revenue and financial services, Kelly O’Dwyer, defined it in the following way:

While there is no single, internationally-agreed definition, typically the black economy refers to people who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax (and superannuation) obligations. The black economy can also include those engaged in organised crime, including those who engage in the production and sale of prohibited goods.

The black economy is also variously known as the underground economy, the non-observed economy or the shadow economy, and definitions can vary to include different activities. It can include things such as undeclared cash-in-hand employment, cash payments for goods and services, and payment for illegal activities.

One estimate of the underground economy from 1999, which only considered cash transactions and excluded illegal activities, put the size of the underground economy at around 15% of gross domestic product.

However, a more recent estimate by the Australian Bureau of Statistics (ABS) in 2013, which encompassed proceeds from illegal activities as well as other areas, estimated the size to be far smaller, at only 2.1% of GDP.

Here you can see the components of what the ABS called the “non-observed economy” (use the button to compare with GDP):