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Monetary modelling techniques have been used in Australia to derive estimates of the underground economy. Using these techniques, estimates as high as 15% of GDP have been derived by independent researchers for Australia. ABS and academic researchers have examined these models and concluded that they have serious flaws and cannot be taken seriously. Analysis was also undertaken to determine the possible implications for the detailed components of GDP if estimates of this magnitude were to be valid. The analysis concluded that the size of the adjustments required to accommodate under-reporting on this scale are highly unlikely to be assessed as plausible. Additionally, such levels of understatement would indicate implausibly high levels of household expenditure, in relation to after tax household income, on the limited range of goods that can be purchased ‘under the counter’.

This conclusion is consistent with the international guidelines which consider such macro- economic modelling methods to be unreliable (OECD 2002, page 190).

36 AUSTRALIA

8. Summary

In the compilation of GDP, ABS makes a 1.3% adjustment for underground transactions that go unreported in the source data. No allowances are made for illegal transactions, as these are explicitly excluded in ASNA from the production boundary that defines the scope of GDP (although it is recognised that they are included within the SNA production boundary). The adjustment relies on indicative information from aggregate income tax audit information, anecdotal evidence and checks and balances inherent in the national accounting methodology itself.

Within each of the three approaches to measuring GDP, areas where there is little or no scope for underground activities account for a substantial proportion of the total. Where understatement does occur it tends to be concentrated in particular areas, which could impact on the reliability of some components of GDP.

For the income measure, under-reporting would be mostly confined to the understatement of income by unincorporated small businesses, small corporations, and CoE paid by small businesses. There is no evidence to suggest that large corporate organisations are involved to any significant degree in underground activity. As most unincorporated businesses are small businesses, the GMI estimate would be the most affected. GMI, however, only accounts for around 8% of the unadjusted income measure of GDP; hence any understatement due either to missing income or missing businesses would have to be many times the current estimate to generate the outcomes that suggest GDP is significantly understated.

From a production perspective, there is again limited scope for many industries to be engaged in underground activities. Industries unlikely to be affected conservatively account for at least 65% of overall activity. Even for the remaining industries that are prone to underground activity (construction, accommodation, cafes and restaurants, personal and other services and retail trade), large businesses are unlikely to be involved to a significant degree and the scope for small businesses to be involved would be limited to some extent by the possibility of detection by the taxation authorities.

On the expenditure side, government expenditure and a large component of household final consumption expenditure are not susceptible to underground activity. Most private business investment expenditure is also unlikely to be susceptible. Underground activities are expected to be concentrated in some forms of household final consumption expenditure and in alterations and additions to dwellings. In the latter case, use is made of household expenditure surveys to benchmark the estimate. Activities where there is scope for some understatement amount to only a third of total transactions and very large adjustments would be required to these components to generate the outcomes that suggest GDP is significantly understated.

While the recent review of the underground economy using upper-bound analysis included some estimations for additional areas of economic activity that could be subject to understatement, such as moonlighting activity and wages and salaries, it was decided not to make any additional adjustments to those currently used. This decision was based largely on the highly subjective nature of the estimates, given the lack of objective data sources. Analysis indicates that the missing amounts are unlikely to have a significant impact on the total level of the adjustment to GDP. Overall, ABS considers that the 1.3% adjustment made for the underground economy in deriving GDP is an adequate adjustment for Australia.

AUSTRIA

1. Sources and estimation methods

Adjustments for the non-observed economy (NOE) in Austrian national accounts can be grouped as follows:

• Adjustment for non-response in statistical surveys (carried out in business statistics); • Adjustment for under-recording in statistical surveys (mainly small units);

• Adjustment for misreporting by units responding to statistical questionnaires (under- reporting of output, over-reporting of intermediate consumption);

• Adjustment for producers intentionally evading registration (e.g. clandestine production);

• Adjustment for producers not obliged to register (e.g. private households); • Other adjustments (e.g. tips).

The methods applied in the particular adjustment procedures are described below. Moreover, an attempt is made to allocate the methods and their results to the types of NOE (T1 to T8) according to Annex 4.1 of the OECD Handbook on Measuring the Non-observed Economy, although a one-to-one allocation is not always feasible. The results refer to the year 2001, since this is the year for which the most recent supply-and-use tables are available at the time of preparing the response to this survey. Thus, these data are fully balanced.