5204.0.55.008 - Information Paper: The Non-Observed Economy and Australia's GDP, 2012  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 12/09/2013  First Issue
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9.1 The ABS has evaluated several estimates of the NOE from sources such as the World Bank and other country results.


9.2 The World Bank's paper of "Shadow Economies all over the World: New Estimates for 162 Countries from 1999 to 2007", aimed to estimate the shadow economy for 162 countries in various stages of development.

9.3 The World Bank's paper specifically defined the shadow economy to include all market–based legal production of goods and services that are deliberately concealed from public authorities, excluding economic crime activities. The analysis and discussion presented in this paper uses a similar definition for the underground economy to include only those activities that are productive and legal, but are deliberately concealed from public authorities to avoid paying taxes or complying with regulations.

9.4 The World Bank's paper adopted a Multiple Indicators Multiple Causes (MIMIC) model to estimate the shadow economies of 162 countries around the world. The data used by the model were sourced from International Monetary Fund, International Labor Organisation, World Bank, Heritage Foundation and United Nations Statistical Database.

9.5 According to the World Bank's paper, the size of Australia's shadow economy is estimated to be 14% of total GDP (129,478 US$'m in value). Its results further show that the driving forces of the shadow economy include an increased burden of taxation, labour market regulations, the quality of public goods and services, and the state of the "official" economy.

9.6 The ABS does not support the methodology and analysis based on the MIMIC model, and considers that estimates of the order of 15% of GDP for the underground economy are implausible. Currently, in the Australian national accounts, explicit upward adjustments of 1.5% of the overall GDP are made to account for underground activity. Additionally, a wide variety of data sources and cross checks are used to assist in the indirect capture of underground activity. It is therefore considered unlikely that the current estimates of GDP are understated to any significant degree because of missed underground activity.


9.7 The question of illegal production measurement is important for other OECD countries. For example, the Netherlands has undertaken significant work in this area and has contributed to the international conversation via an information paper entitled: The contribution of illegal activities to national income in the Netherlands. This paper was presented at the OECD Working Party on National Accounts in 2012.

9.8 The paper covers illegal production such as smuggling, prostitution and the production and sales of illicit drugs. While these estimates are not included in official Dutch statistics, the research provided estimates of national income generated by illegal production over the period 1995–2008.

9.9 The main findings were the, "total contribution of illegal activities to the national income of the Netherlands increased from 1800 million euro in 1995 to almost 3500 million euro in 2008, equalling 0.6 per cent of gross national income. The main illegal sector is drugs, which accounted for over 50 per cent of the total income from illegal activities in 2001. In 2008 that share was down to less than 40 per cent, whereas finding illegal employment rose from about 10 per cent in 1995 to 33 per cent in 2008".

9.10 The value added of the production and sales of illicit drugs in the Netherlands has decreased from about 0.35% of gross national income in the late 1990's to a little over 0.2% in 2008. This compares to the ABS estimate of illegal drug production of 0.4% of GDP in 2009–10.

9.11 The ABS expects the difference in the estimates to be driven by methodological and data factors. For example: different methodologies are used for deriving productions costs; the Netherlands bases production on seizures of imports and domestically produced drugs scaled up by "a risk of seizure" assumption, whereas the Australian production is derived totally from the estimated consumption and known seizures; there are different assumptions about the proportions of domestically produced versus imported quantities of each of the drug varieties; and the markets are different in relation to exports (no exports from Australia) and the Netherlands' "drug tourism" based around cannabis.