Almost everyone knows it, hardly anyone speaks about it: A lot of work is done in the dark, especially with craftsmen and in construction, the “botch” has been part of it for many years. Since the beginning of the corona crisis – since many industries were systematically turned off – the shadow economy has spread to other professional fields, shows a current study by JKU Professor Friedrich Schneider, an expert on shadow economy.
In the year of the crisis there was more botched work throughout Austria than it has been for a number of years. 26.9 billion euros were generated black in 2020, which corresponds to 7.2 percent of Austria's official GDP. The share of the black economy increased by twelve percent in the previous year compared to 2019 – the highest increase in 20 years.
Why is there more botched news during the corona crisis?
IHS business psychologist Katharina Gangl sums up the situation in times of crisis. The greater the economic uncertainty and the doubts about the political leaders, the more people tend to earn something black. This applies above all to those who are personally particularly affected by the crisis. Those who have lost their jobs have less money available, but much more time. The same applies to short-time working, which was only extended yesterday for a further three months. For many who have been on short-time work for months, the botch can then serve as economic security.
This applies above all to sectors that have remained closed for months, explains Gangl: “Despite the government aids, some entrepreneurs see the shadow economy as the only way to keep their business going and to save their company and its employees from the crisis.” So botch as a crisis instrument of the market.
What are the problems with the shadow economy?
In times of crisis, the shadow economy could certainly have a balancing effect on the ailing real economy, says Friedrich Schneider. In fact, added value is generated. He sees the biggest problem in the fact that the work is generated by the Ministry of Finance. Undeclared work causes the state to lose between two and 3.5 billion euros annually through tax and social security losses.
The lack of tax revenue is only a symptom of the shadow economy, its causes are much deeper, adds Oliver Picek, chief economist of the left-wing Momentum Institute. This will undermine the welfare state in the long term. Those who pay their taxes honestly ultimately look through the fingers. In some industries, the botch system. “In the construction industry, we know that undeclared work is often organized by the employer.” With a volume of around 10.6 billion euros, the construction industry is right at the top of the list of bungling industries.
How much is botched in Austria compared to other countries?
Despite the significant increase in the past year, there is as little botch in this country as nowhere else in the European Union. Only the Netherlands and Luxembourg have nearly as low illegal employment rates as Austria. Most botched things are in the Southeast European countries – led by Bulgaria, where the shadow economy accounts for almost a third of official economic output. IHS economist Gangl attributes this to the fact that in these countries trust in the services of the state is generally low and so is tax morale. The fact that undeclared work in Austria is so low in an international comparison is also due to the fact that the proportion of self-employed people in this country is significantly lower than in many southern countries, explains economist Picek.
In addition, the income level is generally quite high. In any case, the fact that the shadow economy has also increased in Austria shows that not everyone in Austria wants to rely solely on the state during the crisis.
What can the state do to reduce undeclared work?
One reason why work is done illegally is the high non-wage labor costs. In Austria, these are well above the OECD average and are much too high overall, criticizes the economically liberal Agenda Austria. Experts from all economic schools of thought largely agree that reducing non-wage labor costs is an effective instrument for significantly reducing undeclared work. Friedrich Schneider also came to the same conclusion. His investigation found that the wage tax cut last September resulted in the black economy not becoming much more degenerate in 2020.
In addition to increased controls, experts also name the reintroduction of the craftsman bonus as an effective tool against illegal work. According to the WKO, the measure would finance itself through increased tax revenue. In economically good times, however, such a bonus can have a destructive effect and lead to even higher prices for consumers, explains Wifo economist Simon Loretz. This is also shown by examples from Germany from the past. In times of crisis, however, it is definitely an instrument to think about, says Loretz.
How risky is it for individual households to hire botchers?
The “classic” when you think of illegal work in the household is the cleaner who cleans the apartment, says Stefan Zischka, lawyer and partner at Jank Weiler Operenyi / Deloitte Legal. “She is usually not employed, does not receive a service check, is not registered with social security.” From a legal point of view, there is a whole series of violations – from reporting offenses to the reduction of wage levies and contributions.
The issue of foreigners employment – in other words, the lack of an employment permit – may also be added. Of course you can argue about whether the cleaning help – if you don't use the service check – should always be employed regularly. But if she comes into the house at the same time every week, does given work and is not allowed to be represented, according to Zischka, there are many reasons for it.
In the case of botch-up on the private construction site, however, commercial law issues can come into play, and one “waives” warranty and guarantee. On the other hand, customers do not have to – and cannot – control whether service providers pay all fees. You are also not obliged to keep receipts. If the hairdresser comes into the house and doesn't leave a bill, “it depends on whether you know he's messing around,” says the lawyer. “A 20-euro bill” is hardly a legal issue.
