Black Economy

The ‘shadow economy’ or ‘black economy’ as it is also known is a major problem facing Exchequer finances and the Irish economy . A recent report by the EU Commission[1] detailed the size of the black economy in each member state as a percentage of their GDP. The figure they provided for Ireland in 2012 was 12.8 per cent.

Given Ireland’s GDP in 2011 was approximately €156 billion, if the economy matched that figure in the current year the estimated size of the black economy would be approximately €19.97 billion. As a comparison, in 2011 the construction activity in the Republic of Ireland was valued at approximately 6% of GDP and amounted to €9.12[2] billion.

While all sectors of the Irish economy have been affected by the black economy, there have been widespread reports of black economy activity prevailing in the construction sector. The Construction Industry Federation (CIF), as the group which represents construction employers, have received considerable feedback from our members detailing repeated instances of black economy activity taking place throughout the Irish construction industry.

Because of the nature of the black economy in the construction sector and the work it involves, it is currently not possible to put an accurate figure on the level of activity in the industry.

Black economy activity in the construction sector

What constitutes black economy activity in the construction sector? Simply put it is work that is carried out outside the scope of the relevant regulations facing the industry and with no regard to compliance with building standards, revenue compliance or health and safety standards.

The most obvious examples of this type of activity involve construction work that is not tax compliant and/ or carried out by individuals who are receiving social welfare benefits for jobseekers simultaneously. Another common form of activity involves construction companies not complying with the labour regulations and meeting the proscribed wage rates for construction workers.

Non compliance with the wage rates or tax regulations allows black economy operatives to undercut those obeying the law when it comes to submitting tenders for construction work. This is a major point of contention within the construction industry and a cause of concern to those operating within the industry who are complying with their legal requirements. Ultimately, this activity leads to loss of revenue to the State and further unemployment as legitimate, compliant employers are unable to compete.

Type of work involved

Based on the feedback provided by our members the CIF has found that black economy activity generally exists when private individuals, householders and small businesses arrange for work to be carried out by construction tradesmen and tradeswomen.

Another area where black economy activity exists is in commercial or public sector contracts, particularly at the sub, sub contractor level. Black economy activity can also extend to material suppliers who are willing to trade on a cash basis – avoiding meeting the various tax and other regulatory requirements.

Cross border activity

One other factor in the black economy construction work currently taking place in the Republic of Ireland is the level of cross border activity. Many CIF members have highlighted difficulties they have come across due to construction operatives from the North operating in the Republic. The CIF members have highlighted issues concerning labour regulation and tax compliance being the main factors when it comes to black economy construction operations from the North.

It was also noted that this type of black economy activity is particularly prevalent in the border counties. However CIF members have also noted it extending as far south as Dublin and beyond.

Advice for avoiding black economy operatives

Feedback provided by members indicates that many of those individuals, householders and businesses who have engaged black economy construction workers have done so unwittingly. Generally the clients who have hired these operatives are unaware that the construction workers they engage could be operating outside of the tax provisions and labour regulations. This suggests these people are funding the black economy in the construction sector without realising it.

To help avoid future engagement of black economy operations, the CIF has prepared the following points to help individuals, householders and businesses to ensure they are dealing with legitimate construction operatives who are tax compliant, who are paying their staff the proscribed wage rates and who obey the relevant construction regulations and standards. We hope by encouraging the adoption of these measures it will decrease the level of black economy activity in the construction industry.

1) Ask for a contract
Legitimate contractors will be able to assist you with a contract which will set out your obligations and the obligations of the construction firm.

2) Ask for a VAT number
All construction work is subject to VAT. Therefore all legitimate construction companies and operatives should have a VAT number. Legitimate construction companies will have no problem supplying a VAT number when requested.

If any problems persist with the construction operative then the best course of action is to contact the Office of the Revenue Commissioners.

3) Check if they have a C2 certificate
This is the relevant tax clearance certificate provided to construction companies by the Revenue Commissioners.

4) Ask about where the construction materials came from
Black economy operatives are less likely to use high quality materials. If the work involves construction materials ask for details of where the materials being used came from. A receipt which shows the materials came from a recognised building supplier usually means better quality materials are being used.

5) Ask if they have certified health and safety standards
Those that operate in the black economy are unlikely to be compliant with the relevant health and safety standards when it comes to undertaking construction work. If the construction operative is certified and has a safety statement they are more likely to be a fully compliant operation. A safety statement is a legal requirement for all employers detailing how they manage safety issues.

6) Check if they have insurance
In the unfortunate event of an accident occurring involving construction work being undertaken, the client can be sued by the injured party. If the construction operative does not have insurance this increases the level of liability the client could face.

7) Ask if they are members of the CIF
CIF members are fully aware of the various regulations and are required to be tax compliant and abide by the laws regulating the construction industry.

The CIF conducted a survey of our members on the issue of the black economy in 2012. Please find the details of that survey here.