Ms Avine Mcnally:

I thank the committee for the opportunity to attend. I will not go over the points Mr. Fielding has made. We are here to speak on behalf of the Small Firms Association, SFA, which represents more than 7,500 companies and seven affiliated organisations, mainly small businesses based throughout Ireland.

The hidden economy is bad news for everyone. It is bad news for jobs and diverts spending away from the legitimate businesses that are trading, and it is bad news for the individuals working within the black economy, who are probably the least protected workers in the workforce. It also robs the Exchequer of much-needed tax revenue. Another issue is that consumers also lose out, although this is a point we often miss. For example, counterfeit goods are rarely of the same quality, laundered fuel is damaging to vehicles and illicit alcohol and fake drugs can have many harmful effects on individuals.

The point has been made that there is always an element of a hidden economy within any jurisdiction and this often increases during times of economic difficulty. Ireland is not alone in this, as has been seen throughout many European countries, particularly when the recession bit in Europe in 2009. Due to the nature of this activity, it is obviously difficult to get an exact figure. As Mr. Fielding noted, Professor Friedrich Schneider is the economist who has done most work in this area, and his January 2013 report estimated the Irish figure at some 14% of GDP, whereas the European average is in the region of 18% of GDP. We estimate this works out at approximately €6 billion per year, so approximately €500 million is generated each month within the black economy to which the taxman does not have access. While the figure for the EU is 18% of GDP, for countries such as Australia, Japan and New Zealand the figures are approximately 9%, which suggests some countries are more advanced in the steps and approach they have taken in dealing with this area.

The scope, scale and extent of the black economy poses a very serious threat to the survival of many registered, tax-compliant companies. The cycle of non-payment of taxes increases the burden on the legitimate economy, which in turn can affect competitiveness in small businesses and drives more people into dependency, thus raising social welfare costs. This activity clearly undermines the ability of Government to collect taxes efficiently and effectively. At this time, we believe it is essential that all companies should be able to play on a level playing field. Due to the reduced overheads and lack of compliance, those who operate within the informal economy have huge competitive advantages, which distorts the reality of the competitive labour market and trading market small businesses currently face.

In 2012, a report from Retail Ireland suggested the Exchequer is losing approximately €861 million a year because of Irish people knowingly or unknowingly purchasing illegal goods. Retail Ireland estimated this is the equivalent of 5.7% of the PAYE collected, which is a staggering figure. The Small Firms Association's crime report showed that we must also consider the area of fraud. There has been a massive increase in internal fraud in the past three years as well as an increase in theft of cash and property. While people may be helping themselves for their own benefit, it must be assumed much of this stock is moving into a black, hidden economy.

Figures from the Department of Social Protection show that one of the key areas for fraud is through jobseeker's benefit, where it is estimated the net cost to the Exchequer is 1.6% of expenditure. We are beginning to see people's tolerance for this type of activity become less strong than it may have been in the past, and people are certainly not turning as much of a blind eye. According to the Department, almost 12,000 calls were received in 2012 specifically relating to people who were thought to be working and claiming benefit. These figures clearly show that the public is not willing to ignore abuse of the system or see the public finances being abused, particularly when individuals are suffering as a result of welfare cuts. Apart from the impact on the economy and the State, we have to remember that workers in the black economy are among those least protected in terms of employment legislation and health and other social benefits.

Before I hand over to our chairman, who will talk the committee through some of our proposed actions, we must also consider our approach to this issue. At the heart of any black economy is one very simple notion that anyone can understand - namely, dishonesty. The clear message coming from the Judiciary has to be that crime does not pay. The figures from the Revenue Commissioners show there were 206 serious tax and customs cases at various stages of prosecution in Ireland in 2011. During this period, 497 criminal prosecutions for excise and customs offences were recorded. One might say that is quite a number, but one must remember that the level of convictions was just over 6%. There has to be a message that crime does not pay and that the criminal justice response to this dishonesty is clear and firm. It is vital that an adequate policy response is backed by the necessary resources to bring the criminals to justice and to protect legitimate businesses and consumers who rely on that structure.

I will pass over to our chairman, Mr. A. J. Noonan, who will discuss some of the SFA's proposed views and actions in this regard.