Monday, August 24, 2009

The Underground Economy is about to expand big time
A guest article from Bruce Bartlett
The underground economy also known as the second economy,parallel economy,unofficial economy,informal economy or just the black market is a phenomenon throughout the world.It exists wherever governments EXCESSIVELY TAX or unreasonably regulate economic activity.Although the underground economy also includes criminal activity,such as drug dealing,the overwhelming bulk of it consists of the provision of ordinary goods and services that in other places be perfectly legal and legitimate.
The growth of the underground is a matter of increasing concern throughout Europe.An unpublished report by the European Union says that the underground economic activity may account for between 7% to 16% of the total gross domestic product(GDP) of its members nations,employing between 10 million and 28 million workers and accounting for between 7 and 19 percent of employment.The problem is especially acute in transitional economies in eastern Europe,but is growing everywhere.
Great Britain-The underground economy has been a hot topic in Great Britain since 1979...Sir William Pile of the British revenue board estimated that untaxed earnings equaled 7.5% of GDP--American economist Edgar Feige put the figure put the true figure closer to 15% of GDP---A deloitte & Touche study figured that the underground economy amounted to 12 % of Britains GDP and reduced income tax by 1/3rd.
Italy-It estimated that Italy`s true output was 25% larger than official figures indicated,due to the vast amount of off-the-books economic activity,there is no doubt that TAX EVASION in Italy is pervasive.
Germany-It is tempting to blame Italy`s large underground economy on the traditional Italian contempt for authority,but even in Germany,with its long tradition of law and order,has faced problems with tax evasion and illicit economic activity.The problem of tax evasion in Germany seems to have escalated in the 90s.
Not surprisingly,problems with the underground economy and tax evasion escalate as one moves to Europe`s periphery.In Spain,one-third of those officially classified as unemployed are thought to be employed in underground activities.
There does not appear to be a single country in Europe in which the underground economy is not a large and growing problem.Although the authorities frequently attack the problem with arrests and prosecutions,the incentive to make money free of tax or government control is too great for such methods to have more than a modest impact,in the end,successful efforts to reduce the underground economy MUST INVOLVE TAX REDUCTION,deregulation and other market-oriented measures.
So there you have it-The introduction of taxes,especially the vaunted VAT TAX (value added tax) has done nothing but fuel the underground economy,sure government revenues rise,the people who can afford it pay more and more tax as more and more people find black markets and the underground economy to get work done,like I say,the HST is voodoo economics,this measure will hurt business by funnelling money to big industry,the public who are already tapped out will spend less on legitimate businesses which will in the end,hurt the economy.
And for us to cede our provincial tax authority to Ottawa is nuts,Quebec`s HST is a completely different animal,it`s structured completely different,they still have control.....The feds can lower and raise taxes,and with the current state of affairs in Ottawa don`t be surprised if the GST gets raised back to 6% or 7% .....And guess what happens if the feds(Harper or Iggy) whoever wins the next election the raising of the GST is a distinct possibility,and if the GST goes up it will drag our BC HST up with it,so not only would we have our taxes raised by an outside force but all those PST exempt items we once had would be taxed at 13%---14% ---Who knows how high!
The Straight Goods
Cheers-Eyes Wide Open

1 comment:

Anonymous said...

Taxes, and increased taxes, along with regulation, do not of neccesity, drive portions of the economy, underground.

It is the who, what and when of those taxes and regulations that drive portions of the economy underground.

The lower you sit on the socio-economic pecking order, not only the greater the incentive to circumvent those taxes, but the greater the opportunity.

When taxes, regulations and tax increases are regressive, they drive large portions of the economy underground.

Regressive taxes are also easier to avoid, as they take place at the bottom of the socio economic scale, where millions of transactions take place every day, and for enforcement, are very costly and ineffective to police as the return on investment, ( time, investigation and prosecution) are minimal.

Progressive taxes on the other hand are a whole different matter, as are progressive regulations.