The economic impact of illegal phoenix activity
Understand how illegal phoenix activity causes significant harm to the community and the government.
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Illegal phoenix activity
Illegal phoenix activity causes significant harm to the community, private businesses, employees, contractors, and the government.
Illegal phoenix activity can occur in any industry or location. However, it is particularly prevalent in the property and construction, labour hire, and security industries. We also see it in regional Australia in mining, agriculture, horticulture, and transport.
The Phoenix Taskforce was established in 2014 to reduce the impact of illegal phoenix activity. It aims to protect honest businesses, employee entitlements and public revenue.
In 2018, 3 Phoenix Taskforce member agencies (the ATO, Australian Securities and Investments Commission and the Fair Work Ombudsman) commissioned PricewaterhouseCoopers (PwC) to measure the impacts of illegal phoenix activity.
The report: economic impacts of potential illegal phoenix activity report (PDF 778KB)This link will download a fileestimates the economic impact of illegal phoenix activity on business, employees, and government to be between $2.85 billion and $5.13 billion annually.
Costs of phoenix activity
The report estimates the following annual costs of phoenix activity.
- The cost to business from unpaid trade creditors is between $1,162 million to $3,171 million.
- The cost to employees through unpaid entitlements is between $31 million to $298 million.
- The cost to government from unpaid taxes and compliance costs is around $1,660 million.
The Phoenix Taskforce plans to commission further reporting to independently measure any changes to the economic impact of illegal phoenix activity.
The PwC report is not a tax gap estimate, because it focuses on economic activity and not tax effect.
The PwC report considers the broader economic impact on the community, specifically to unsecured trade creditors, employees and government agencies. With a focus on Fair Entitlements Guarantee claims and unpaid state-based taxes. PwC’s estimate includes direct compliance costs, whereas the tax gap’s focus is on revenue not received.
Prior reports
The 2018 report builds on the 2012 report prepared by PwC for the Fair Work Ombudsman Phoenix activity: Sizing the problem and matching solutions (PDF, 774 KB)This link will download a file.
At that time PwC estimated the annual cost of phoenix activity to be between $1.8 billion and $3.2 billion.
The 2012 report used anecdotal industry feedback and decades-old survey results from the 1996 Australian Securities Commission Phoenix companies and insolvent trading report to infer its results, as opposed to data-driven evidence used today.
By contrast, the 2018 report collects information from:
- Phoenix Taskforce members (since the taskforce was established in November 2014)
- ASIC external administration reports
- details of unsecured creditors and unpaid superannuation
- the Fair Entitlement Guarantee (FEG) scheme
- ATO debts
- the ATO’s data-driven Phoenix Risk Model (PRM) to identify the potential illegal phoenix population.
Understand how illegal phoenix activity causes significant harm to the community and the government.