The shadow economy refers to legal and illegal economic activity that is not reported or taxed.
The shadow economy is behavioural driven and is a result of opportunistic or deliberate actions to avoid tax or exploit the regulatory system. These activities are not victimless crimes, they put pressure on Australians who are doing the right thing and have harmful consequences such as:
- workers missing out on their entitlements (for example, proper wages, leave or employee protection)
- honest businesses being undercut when others don’t pay the tax or superannuation they're supposed to
- criminal or illegal activities that are funding organised crime.
The shadow economy is constantly changing and adapting. In particular, with changes in ways of working and business models, the growth of the digital economy, wider social changes and the economic environment. This can lead to new shadow economy activities emerging and some existing ones expanding in scale or scope.
In 2012, the Australian Bureau of Statistics estimated its size to be 1.5% of GDP while the 2016 government taskforce estimated the economic impact of the shadow economy may be as large as 3% of GDP (approximately $50 billion at the time, up to $80 billion in present terms). More recent estimates from the ATO's tax gap program have shown the tax impact of the shadow economy to have grown from 3.8% in 2017 to 5.3% in 2022.
The shadow economy impacts our broader community; reducing funds for essential services such as health, education, transport, infrastructure, and disaster response.
We are committed to tackling the shadow economy and creating a level playing field. Learn about:
- our Action to address the shadow economy
- our role in the Co-ordinated Government Response
- our Tax Integrity Centre.
For information on how we estimate and reduce the shadow economy tax gap, see Shadow Economy tax gap.
For information on the whole-of-government response to tackle the shadow economy, see shadow economy Treasury WebsiteExternal Link.