Editor’s note: why we should care

Okey Chigbo, Editor in chief of CPA Magazine, introduces the features in the December 2016 issue.

How many people pay for services from the “cash and no receipts” sector, otherwise known as the underground economy, or UE? If you live in parts of Canada such as Toronto or Vancouver, you probably know that an uncomfortably high percentage of people pay cash for work done and are quite happy to do without receipts. A 2010 Environics Survey of 1,113 Ontario homeowners reported that 56% of those surveyed had paid cash for home renovations and repairs. And Jock Finlayson, executive vice-president and chief policy officer of the Business Council of British Columbia, estimates that the UE in BC could be up to 10% of provincial GDP, a rather high figure given that Statistics Canada has estimated Canada’s UE to be 2.4% of national GDP.

So, why should anyone care if we pay cash for goods and services and keep no record of it? How can there be harm in doing so? After all, everyone wins: it costs less, and the tradespeople get employment. It is to answer these questions, and others, that we are running this special issue on the underground economy. There are four feature stories in the issue: two approach the subject from the viewpoint of what the UE is and means, while two look at it from the point of view of providers and users of UE services.

In “Life underground,” Yan Barcelo, our economics specialist, looks at the definition, limits and scope of the UE. What are the major sectors as defined by Statistics Canada? They are in order of importance, “residential construction (28% of total UE in 2012), finance, insurance, real estate, rental, leasing and holding companies (13%), retail trade (13%) and accommodation and food services (12%).”

Lisa van de Geyn, in “Risky business,” looks at why the UE can pose a problem for countries where there is a high level of involvement in the sector. She cites a well-known example, Greece. “While there isn’t one simple reason why Greece’s economy continues to deteriorate, it is hard to discount the role its underground economy has played in the crisis.” She writes that The Economist reported in 2014 that two out of every three Greek workers “understate their pay, or fail to disclose earnings altogether.” She writes, “If left to operate unchecked, the shadow economy can lead to higher taxes for everyone, a lack of funding for social programs and can even contribute to the whole system collapsing, as it did in Greece.”

In “Snapshots from the underground,” Barcelo speaks to people who sell their services underground, and in “Receipt, Please,” writer Peter Carter relates his experience as a purchaser of UE services.

This is a very important issue to all Canadians.