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Dr. Mark Sinclair
Dr. Mark Sinclair, Mentor Education

Australia’s actual GDP is $26B higher than reported

13 September 2013

According to latest figures obtained by the Australian Bureau of Statistics the illegal drugs industry contributes about $6 billion a year to the size of the economy, while tax avoidance adds a further $20bn.

The ABS has stated that it has conducted the research on illegal drug use and underground activity in order to determine what adjustments to make to its gross domestic product estimates and calculates illegal drugs account for 0.8 per cent of total household consumption and 0.4 per cent of the total

As financial advisers, it is beneficial to have some understanding of the impact illegal drugs and underground activity has on the Australian economy, as there needs to be an awareness of the source of investment funds, particularly when there are reporting obligations in terms of
anti-money laundering.

The ABS has classified the breakdown of the entire illegal drug industry, as: $1b on agriculture (the cultivation of marijuana,  $4.4bn on retail and wholesale while manufacturing generating only $46m. $542m is spent on smuggled drug imports. Heroin and cocaine are entirely imported while 95 per cent of ecstacy supplies come from overseas. Marijuana is entirely domestic, while 80 per cent of amphetamines are manufactured locally.

As part of the report the ABS has also studied the under-statement of business income and over-statement of (underground activity). Included in the study are: tax avoidance deceiving social security and avoiding legal standards such as minimum wage. The main offender to underground activity is the construction industry with its contribution to the economy understated by $10.5bn as a result of such avoidance. The mining industry has also been highlighted as an industry that underestimates its profits, with ABS figures estimating it understates its profits by $1.8bn and manufacturing at $1.7bn.

The total adjustment to GDP for underground activity is $20.7bn, 1.5 per cent of GDP.

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