Grey market robs State of €1.6bn

THE country’s grey economy is robbing the Government of close to €1.6 billion in unpaid taxes annually.

That is close to the full amount the Government plans to borrow this year to fund the running of the country.

If the money was collected, Government borrowing would be close to nil for the current year.

At the root of the problem is the serious expansion of the grey economy expected to account for between 5 and 6% of Gross Domestic Product this year which is a massive €6 billion.

Small Firms Association director Pat Delaney warned that as the economy contracts the figure will get worse and by the year end it could be depriving the state of about €2bn in unpaid taxes.

Mr Delaney believes the burgeoning grey economy is a major factor in the sharp drop in income and other tax in the past few years.

And he says the reality is that many players in certain sectors of the economy have gone back to operating in the “unofficial economy” as they struggle to maintain their income in a rapidly contracting Irish economy.

Mr Delaney warned also that the higher VAT rates imposed in recent budgets has “always been lined to a flight to the unofficial economy”.

Jim Curran, head of research at employer body ISME, agrees also with the view that the grey economy is expanding once more.

In its recent press briefing the Department of Finance indicated that the PAYE revenue figures were holding up but that the overall income tax take was suffering due to a decrease from self employed and individual traders.

It is understood also that high earners have begun to cut back on their salaries in order to keep cash in their firms struggling under the sharp down turn in the Irish economy expected to grow by just 2% this year.

The finger of suspicion is also being pointed at operators in the grey economy where thousands of sole traders and self-employed are believed to have migrated in the past few years in order to survive.

In 1997 a study found the grey economy could be worth up to 13% of GDP.

Carried out by Gabriel Fagan, he reckons that in straitened economic times that figure can move to the higher end of the scale.

While economists are slow to put a precise figure on it, they argue if one could fully estimate its worth it could no longer be labelled grey, but they agreed that 5% of GDP might be a fair stab at the total amount of untaxed income floating around the system.

Back in the 1980s the figure was believed to be in the region of €4 billion during the sharp economic slowdown.

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