By Linda White
Special to the Toronto Sun
It's often called "working under the table" and it costs the provincial and federal governments millions of dollars in lost revenue each year. But the underground economy also carries many hidden costs, the Ontario Construction Secretariat (OCS) warns.
The practice of accepting cash for construction projects pits underground contractors against legitimate contractors on an unlevel playing field, says Katharine Jacobs, OCS manager of research and analysis.
"Legitimate contractors are paying legitimate expenses, so it costs more for them (to complete a project) than someone in the underground economy," she says. "Legitimate contractors pay into apprenticeship training through their union and contribute to workers' compensation to help people who are hurt on the job."
'Twice as safe'
They also invest in safer workplaces, she notes. "Our research indicates unionized workers are twice as safe as their underground economy counterparts."
The underground economy has been growing since the early 1990s. "We saw a sharp increase in the use of cash for transactions around the time the GST was introduced in 1991," Jacobs says. "It was also a time of recession, so the GST was an additional burden. People were trying to find work and do it cheaply."
BY THE NUMBERS|
According to the Ontario Construction Secretariat (OCS), the growth of the underground economy continues to negatively impact the construction industry in many ways. Hidden costs include:
Higher tax and contribution burdens on legitimate contractors and workers.
Unfair competition for legitimate contractors and workers.
Potentially weakens health and safety policies, undermines labour standards and erodes construction standards.
Reduces the contribution base for benefits plans.
Weakens apprenticeship training and skills development.
-- Information from OCS at www.iciconstruction.com
That in turn led to a dramatic increase in the number of self-employed construction workers. Though many are legitimate, self-employment makes it easier for underground workers to conceal how much they earn, thereby reducing the amount they pay in income tax.
In 2001, the underground economy accounted for about one-quarter of all construction work -- the equivalent of about 76,400 workers -- the OCS estimates. In 2002, it cost Ontario about $1.3 billion -- the equivalent of 20,000 new long-term beds or 79,000 post-secondary students. About 64 per cent of that amount is attributable to income that is not declared for income tax purposes, the OCS reports.
Labour Minister Chris Bentley has vowed to "aggressively target" the underground economy to stem an estimated $2 billion annual loss of government revenue from the construction sector alone. Over the next months, the government will, in collaboration with other partners:
Train inspectors to deal with issues related to the underground economy.
Expand efforts to identify unregistered operators in the construction sector.
Undertake a public awareness campaign.
Look to expand and improve enforcement.
Organized labour looks forward to those initiatives. "We are dealing with the impact of the underground economy every day," says William Nicholls, business manager/secretary treasurer with the International Union of Painters and Allied Trades. That union represents about 2,000 members across the province.
"Registered contractors are paying decent wages and benefits and are at a disadvantage when they compete against underground contractors. According to our estimates, it accounts for a difference of about 26 to 35 per cent," Nicholls says.
Legitimate contractors may be unwittingly supporting the underground economy. "General contractors may take on a subcontractor who hires underground economy contractors.
There's nothing legislated to have them declare they are paying the appropriate deductions," Nicholls says.
"We're involved in organizing non-union workers, but need to see other advances to correct the problem."
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