Snapshots from the underground

They know it’s wrong, but those who work or pay under the table say it’s the only way to survive.

Two years ago Howard’s company moved a few thousand jobs to Mexico and he was fired. One small job after another started him out in his present occupation of handyman. “What I do is considered ‘underground,’” he points out, “but what companies do, moving jobs at a tenth of my salary to Mexico, is the equivalent of what I do.” The underground economy, as described by half a dozen of its participants, stands out as a world of insecurity, hardship, bad luck and quite a bit of resentment. Some get by somewhat comfortably, but many could not get by if they did not cheat. They would probably be on welfare and cost taxpayers even more.

BIG JOBS LOST

Howard and Steve both perform odd jobs for clients in their respective areas: repair work, painting, mowing lawns and hauling material. Howard, 55, had been a civil engineer for the large manufacturing firm that moved so many jobs to Mexico. He learned his present “trade” from handing out contracts to countless craftsmen — carpenters, welders, plumbers, etc.

Steve, in his mid-40s, was a superintendent for eight years on construction sites for projects such as arenas, schools and pumping stations. “That’s when the Harper government was throwing a lot of money at infrastructure,” Steve recalls. “But the government didn’t pay [within] 90 days, yet many construction contractors had millions committed. At some point, they just dropped out and half the staff got canned. From that point, contracts became very spotty. I went from contract to contract, and then it just cut off.”

Howard made $88,000 a year and Steve earned $120,000; both worked 60-hour weeks. Today, they make half, or less, of what they did. However, notes Howard, “I work 30 hours a week, [but] when you take taxes and expenses out of what I previously made, I end up with about the same net amount in pocket.” He doesn’t like working this way, he says, “but I do it anyway.”

Still, Steve and Howard are acutely aware of the insecurity of their status. Both want to find a regular job and are actively seeking one. “I applied to about 10 jobs this week,” says Steve.

Howard understands very well why clients call on him. He charges $25 an hour, without taxes. “A plumber goes for $80 an hour,” he says. “Sure, he has equipment and a truck to pay for. But most people can’t afford specialized trades anymore.”

Sylvia’s activity resembles Howard’s and Steve’s: she does housecleaning in private residences. But her situation is more precarious. At age 63, retired from her work on cargo ships, she lives on two small pensions, one for disability. “Sometimes I’m very tired and I can’t commit to a job for four hours a day, five days a week,” she says.

She doesn’t declare her housecleaning revenue; only her pensions. “I’ve never had [a client] ask [if I charge] taxes,” Sylvia adds. “It just goes without saying.” If she were to suffer an accident during work, things would become complicated, just as they would for Howard and Steve. “It would be tough luck for me, I guess. I wouldn’t sue my clients, unless it was gross negligence on their part,” she says.

Sylvia claims that she lives very close to poverty and the extra revenue only allows her to stay afloat. “I don’t see my way out of my situation,” she says. “Doing housework is the easiest way.” If she declared any revenue above $5,400, her disability allowance would be cancelled. Even some government employees have empathized with her situation. “They encouraged me to work just enough so that I would not lose my disability [pension].”

THE RESTAURATEUR

Christian started out with one restaurant; 10 years later, he opened a second one. After about two more years, when the government came after him for unpaid GST, he filed for bankruptcy and closed down.

He hid salaries, paid suppliers under the table and didn’t declare part of his revenues. “I couldn’t do otherwise if I wanted to pull a small salary for myself,” he says. “And most of the time, I was the last one to get paid.” Profits? They were few and far between. What appeared to be profit was in fact money he had saved in a box for the rainy days that were sure to come. “It’s a steeplechase,” he says. “Just to survive from one quarter to the next, you have to resort to every way of cheating.”

At some point, the Quebec government forced the implementation of its sales recording modules (or SRM, software that forces the disclosure of sales). “It compelled us to declare the majority of our sales,” says Christian, “and it put more pressure to save money elsewhere — on salaries, for example.” Another scheme was to “game” promotional coupons that third parties, such as La Forfaiterie (which sells promotional coupon booklets), sell to customers. Since such sales are relatively easy to hide, Christian didn’t declare them.

Restaurants are a highly regulated business, something Christian quickly found out. “I was open barely a week, and I had all these inspectors swarming in to check that I met norms” — the fire inspector and city workers coming to check on non-smoking areas, sanitary conditions and handicap access, etc. “You feel that these public servants are not on your side, not there to help. I’m in the private sector, you see.” He felt they saw him as an exploiteur, “here to fill my pockets [at] everybody [else’s expense].”

The way he explains it, Christian’s downfall followed an inevitable path. “In the first year I put in my own capital. In the second year I dug into credit. The third year I was keeping my creditors at bay.” One such creditor was Revenu Québec. He was regularly late paying consumption taxes “because that’s the only place where you can hold things back,” says Christian. “But at some point, the government decides it has sent you enough notices and goes after you. They freeze your bank account, and all of a sudden you can’t pay your employees and your suppliers. The government says you’re a criminal, that you’ve appropriated public funds. In fact, you’re only looking for some breathing space somewhere. Had I known, I would never have gone into this business.”

RETAIL GAMES

Jessica and Mike chose to go into retail. Jessica, who retired about eight years ago, had two successive stores after first trying her hand at a flea market. At this market, “I usually declared 70% of my revenues and hid 30%,” she says. “Many around me never declared anything.”

Then she opened a store, which in good years gave her a comfortable living, up to $100,000 annually. She called on many stratagems to achieve that, such as keeping two systems of accounting going. She had two sets of invoices, all numbered in sequence. One in three was not declared. To fill in the missing invoice number, she would pull one from the “backup” series. “As long as the numbers follow, the tax people are happy,” she says.

One day, she installed an independent ATM, which she personally supplied with money. The operator charged $2.50 per transaction, keeping $1.50 and giving $1 to Jessica. “That’s the best thing I ever did to hide revenue,” she says. “The [tax agency] couldn’t come and get me with that.”

After selling her first store at a profit, she opened another one, where she implemented the same “systems.” But Jessica was a compulsive gambler and often went to Las Vegas, where she gambled and lost. “That’s what killed me,” she admits. She fell sick, her son struggled with substance abuse and employees weren’t coming in. “Had I not played, I would have pulled through. But casinos were my escape and compensation.”

Mike has been running a retail shop for two years, but seems to be barely scraping by. “When we have profits to hide, we declare fake expenses,” he says. “There are people around us who always have money to hide. So they devise fake invoices for repairs or renovations, and pass the invoices on as expenses.” By falsifying expenses, Mike says, “we always manage to keep our books barely on the positive side. But in fact, we make so little profit that we don’t need to fake expenses that much.”

A REVOLUTION

Interestingly, a few of our underground interviewees have solutions for eradicating the underground economy. “There could be a way to cancel out a good part of the underground economy by allowing a ‘middle-ground’ one,” Christian proposes. “For example, a small-time entrepreneur could be allowed to fetch $30,000 to $40,000 without paying any taxes. At least that person would not be on welfare or on unemployment.”

Christian also thinks SRMs should be installed in every type and size of retail store, not only in restaurants. “Big companies manage to hide [tens] of millions each year,” he says.

Steve’s comments show a strong undercurrent of resentment. “Government should back off,” he says. “If it left me $80,000 of $100,000, that would be fine. But we get taxed up the yin yang. How can the government take 50%? When you mess with people, people will find a way to mess back. This is like a revolution: screw you!”

(Editor’s note: all names have been changed.)

About the Author

Yan Barcelo


Yan Barcelo is a journalist in Montreal.

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