What is the shadow economy?
The shadow economy refers to both legal and illegal economic activity that is not reported or taxed. The shadow economy is a result of opportunistic or deliberate actions to evade tax or exploit the regulatory system.
These choices made put pressure on Australians who are doing the right thing. They 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
- reduced tax revenue for essential services such as health, education, transport, infrastructure, and disaster response.
The shadow economy is evolving
The shadow economy is constantly changing and adapting, in particular due to:
- demanding cash payment for work
- the difficult economic environment
- the growth of the digital economy
- wider social changes and business models.
This means new shadow economy behaviours emerge and some existing behaviours expand in scale or scope.
Size of the shadow economy
In 2012, the Australian Bureau of Statistics estimated the size of the shadow economy to be 1.5% of GDP. A 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, or over $80 billion in 2025). More recent estimates from our tax gap program have shown the tax impact of the shadow economy to have grown from 3.8% in 2017 to 5.4% in 2023.
While these measures differ, our overall insights indicate the shadow economy has likely doubled over the last decade.
How we are combating the shadow economy
We are committed to tackling the shadow economy and creating a level playing field. Learn about:
- our actions to address the shadow economy
- our role in the Co-ordinated Government Response
- our Tax Integrity Centre
- how we measure the shadow economy tax gap.
The Treasury website also has information about the whole-of-government response to tackle the shadow economy.