The " Black " Economy !

Australian taxpayers pay about $ 250 billion in income tax and the tax office estimates that a further ten percent is lost because of the " Black " economy which siphons off a whopping $ 25 billion.  That is enough to fill many of the gaping holes that the Treasury is struggling to fill.

As usual at this time of year, the tax office is making threatening noises about a blitz on tax evaders.   Each year is selects a number of industries that will be subjected to extensive tax audits because they have the capacity to attract a high volume of cash payments - some of which may not be processed through the cash register.  This early warning usually improves compliance.

No country in the world has successfully closed down it's black economy.  It is a basic fact of life that there will always be tradies who will offer an attractive discount if the buyer pays in cash, and trading companies which have the sort of business that does not leave financial " footprints ".    This is compounded by the vast number of people who pull out their wallet and pay cash for most services.

It is in the interests of the tax man to assist the banks and other financial services as they develop electronic ways of paying for goods and services, and in this respect the " Tap and Go " debit card looks promising. It allows customers making purchases below a hundred dollars value to simply tap their card on the terminal - and the sale is instantly transferred from one bank account to the other. No need to enter a PIN or sign and the machine provides a sales receipt.  From the tax man's point of view, this sale is impossible to be ignored at tax time - because it is electronically recorded and appears on bank statements.

The more that " Tap and Go " can be encouraged, the less likely that items such as paying for a haircut, buying a cup of coffee, taking a cab ride - or the thousands of minor transactions that we normally pay in cash - can escape the tax net.   Obviously the big incentive for the service provider is increased security.   The less money in the till, the lower the risk of robbery by holdup - or while transferring this cash to the bank.

The wisdom of this sort of thinking was evident when the Goods and Services tax ( GST ) was introduced.  Instead of concentrating on the " earning end " of the money supply, direction changed to the " spending end ".    Money earned by tax evasion did not escape tax free, because the moment it was spent the GST took it's cut.   Even the proceeds of crime was not immune to this form of taxation, and the more money spent the bigger the amount netted by the tax office.

We will always have a degree of the Black economy but netting a bigger tax take will require a change of thinking by the tax office.  The use of incentives to promote systems like " Tap and Go " would be more rewarding than a draconian increase in tax audits to change the money culture - and it is probably more a case of nickel and dime tax evasion adding to the tax loss than larger items.

The more citizens can be persuaded to carry less cash in their wallets and pay more electronically, the more this problem will be resolved !