Treasury has failed to effectively tackle the shadow economy, which leeches $12.4bn in tax from Australia, and “paused” work on it during the Covid pandemic, an auditor general’s report has found.

The shadow – or black – economy refers to dishonest or criminal activities operating outside the tax system and can include illicit tobacco dealing, money laundering, underpayment of wages, unregulated gambling and motor vehicle fraud.

According to Treasury, the shadow economy flies under the Australian Taxation Office’s radar, undermining tax revenue. It can hurt individuals by exposing them to workplace exploitation, as well as potentially penalise those doing the right thing “by creating an uneven playing field”.

The government set up a shadow economy taskforce and its 2017 recommendations included cracking down on cash-in-hand work, the gig economy and tax avoidance measures. More than $900m was put towards implementing its recommendations, including $12.3m to Treasury.

The Coalition government at the time agreed to 27 of taskforce’s 80 recommendations. Of the recommendations the Coalition agreed to, 44% – or 12 – have been fulfilled.

The auditor general examined the performance of the Australian Taxation Office, Treasury and the home affairs department in implementing those recommendations.

It found Treasury was “not effective in coordinating the implementation of the report, and didn’t establish a framework to assess the effectiveness of the report implementation”.

“As such, it is not evident that outcomes have been achieved,” the Australian National Audit Office report noted

“Treasury’s management of information does not support effective governance and coordination.

“Its management of information impacts its ability to be accountable and transparent.

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“It also creates risks around its ability to provide quality and timely advice and reporting on the shadow economy to the government, and to create an effective shadow economy policy environment.”

Treasury also did not have “fit for purpose monitoring, reporting and evaluation arrangements in place”.

The auditor general found problems including that records of key decisions were not always documented, or “did not allow for transparency and accountability”. Treasury had poor information management and a lack of clearly defined responsibilities and accountabilities, and “did not set out a clear plan of action”.

The department’s executive board agreed to pause work on the shadow economy at the start of the Covid pandemic.

The ANAO noted that as of February this year there had been no updates to the government since June 2021.

The ANAO recommended improved policies and procedures, better reporting to government, efficiency measures to use resources efficiently, and further work on the taskforce recommendations.

In response, Treasury said it agreed with the ANAO’s recommendations and was “committed to addressing the findings of the report”.

It said resources were reprioritised to support the government’s management of the Covid pandemic but that it would continue to work on its approach.

On the other hand, the ATO and home affairs were “largely effective”, the report found.


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