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The federal Treasury failed to carry out its key role in shining a light on the country’s $75 billion black economy, effectively abandoning its job during the depths of the COVID pandemic, a scathing independent examination of the department has revealed.
Compiled by the Australian National Audit Office, the report found Treasury is still struggling to carry out the work for which it was given extra funding in 2018-19, even after a special taskforce warned the black economy was an “urgent, pervasive and damaging problem”.
The black economy doubled in size between 2012 and 2017 to 3 per cent of GDP.Credit: John Woudstra
In October 2017, the black economy taskforce made 80 separate recommendations to the then Turnbull government.
The recommendations – including a ban on cash transactions of more than $10,000, special public awareness programs and banning from government contracts companies with poor tax records – were prompted by the taskforce’s report that found the black economy had doubled in size between 2012 and 2017 to 3 per cent of GDP. In today’s dollars, that’s the equivalent of $75 billion.
In tax alone, the Tax Office estimates economic activity outside the legal system accounts for $12.4 billion, or 30 per cent, of the annual shortfall in expected collections.
In response to the taskforce’s report, the government agreed with 27 of the proposals, agreed in principle with another 21, noted 18, supported six, rejected three and did not respond to five.
Then treasurer Scott Morrison committed in the 2018-19 budget to provide Treasury ($12.3 million), the Home Affairs Department ($153 million) and the Tax Office ($313.2 million) extra funds to deal with the black economy.
Both Home Affairs and the Tax Office were found by the auditor-general’s office to have been effective in carrying out their responsibilities.
But the audit office said Treasury, which had a pivotal role co-ordinating the response to the taskforce’s proposals, had largely failed to implement recommendations it was charged with overseeing. It said Treasury “had not clearly defined responsibilities and accountabilities for the co-ordination of the implementation of the taskforce report”.
The $12.3 million given to Treasury was, in March 2020, spread out to other parts of the department as it decided to “de-prioritise” the black economy taskforce recommendations due to the pandemic.
“While acknowledging that the COVID-19 pandemic required a rapid response from Treasury, Treasury documentation does not provide an assessment of the potential impact of this decision on the implementation of the taskforce report,” the audit office found.
“Treasury did not set out a clear plan of action for the black economy division to achieve its objectives. There was a lack of clarity around: the division’s deliverables and outcomes; cross-entity governance; stakeholder engagement; risk management; resource management; and monitoring, review and evaluation.”
One of the taskforce’s recommendations was to ban any person or business from making a single transaction in cash worth more than $10,000.
The idea was ultimately dumped by the government after facing backlash from Coalition supporters.
The taskforce also recommended an ongoing shadow economy research program. While supported by the government, as of February this year it had yet to be implemented.
Senior Treasury official Luke Yeaman says COVID disrupted the department’s response to the black economy taskforce.Credit: Alex Ellinghausen
In May, then acting Treasury secretary Luke Yeaman said that while the department accepted the audit office’s findings, important key recommendations such as targeting the illicit tobacco sector had been put into action.
“I am concerned that the report has the potential to understate the implementation of the government’s response to the black economy taskforce report,” he said.
Yeaman said COVID had caused disruptions across the department.
“The fact that the shadow economy work program is not yet finalised … should be balanced against other assessments of Treasury’s performance in the COVID-19 pandemic,” he said.
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