5204.0.55.008 - Information Paper: The Non-Observed Economy and Australia's GDP, 2012  
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5.1 Informal production represents an important part of the economy and the labour market in many countries, especially developing countries. Thus, measurements of the informal production are important in their own right, as well as contributing towards exhaustive estimates of GDP.

5.2 In contrast to illegal production, the majority of informal production activities provide goods and services whose production and distribution are perfectly legal. There is also a clear distinction between informal production and underground production. Unlike underground production activities, informal production activities are not necessarily performed with the deliberate intention of evading the payment of taxes or social security contributions, or infringing labour legislation or other regulations.

5.3 The 2008 SNA characterises informal production as:

  1. consisting of units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned. These units typically operate at a low level of organization, with little or no division between labour and capital as factors of production and on a small scale. Labour relations – where they exist – are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees.
  2. Informal production units have the characteristic features of household enterprises. The fixed and other assets used do not belong to the production units as such but to their owners. The units as such cannot engage in transactions or enter into contracts with other units, nor incur liabilities, on their own behalf. The owners have to raise the necessary finance at their own risk and are personally liable, without limit, for any debts or obligations incurred in the production process. Expenditure for production is often indistinguishable from household expenditure. Similarly, capital goods such as buildings or vehicles may be used indistinguishably for business and household purposes.

5.4 Parts of the informal economy can be observed (and therefore more readily included in estimates) while the remaining parts are in the NOE. This paper focuses on the informal NOE, which is thought to be not material in Australia. Although some non–observed production does take place, there are economic and legal incentives to record the vast majority of activity. This is because regulated labour markets, taxation regimes and payments systems capture the majority of economic activity, in contrast to lesser developed countries. Thus, there are no explicit adjustments made to the national accounts to account for informal production.

5.5 However, for other countries, estimates of informal production are an important addition to SNA aggregate measures. For example, Mexico is undertaking significant work in this area and has contributed to the international conversation via an information paper entitled: Explicit Measurement of the Informal Economy in the SCNM and 2008 Base Year Change framework. This paper was presented at the Working Party on National Accounts in 2012.