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  • The economic impact of potential illegal phoenix activity

    The Phoenix Taskforce aims to reduce the impact of illegal phoenix activity and protect honest businesses, employee entitlements and public revenue.

    Illegal phoenix activity occurs throughout Australia and has significant impacts on much of the community, including private businesses, employees, contractors, and state, territory and federal government.

    It can occur in any industry or location. However, illegal phoenix activity is particularly prevalent in major centres in building and construction, labour hire, payroll services, security services, cleaning, computer consulting, cafés and restaurants, and childcare services. We also see it in regional Australia in mining, agriculture, horticulture and transport. There is an emerging trend in intermediaries who promote or facilitate illegal phoenix behaviour.

    To continue to address illegal phoenix activity, three Phoenix Taskforce member agencies (the ATO, Australian Securities and Investments Commission (ASIC) and the Fair Work Ombudsman) commissioned PricewaterhouseCoopers (PwC) to measure the current impacts of illegal phoenix activity.

    The report: The Economic Impacts of Potential Illegal Phoenix Activity estimates the economic impact of illegal phoenix activity on business, employees and government.

    The report estimates the annual direct impact of illegal phoenix activity to be between $2.85 billion and $5.13 billion.

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    About the report

    The new 2018 report builds on a 2012 report prepared by PwC for the Fair Work Ombudsman Phoenix activity: sizing the problem and matching solutions. At that time the annual cost of phoenix activity was estimated to be between $1.8 billion and $3.2 billion. The 2012 report relied on anecdotal industry feedback and decades-old survey results from the 1996 Australian Securities Commission Phoenix companies and insolvent trading report to extrapolate its results, rather than relying on data-driven evidence.

    By contrast, the 2018 report draws on a range of information from Phoenix Taskforce members (since the taskforce was established in November 2014), including ASIC external administration reports, details of unsecured creditors and unpaid superannuation, information from the Fair Entitlement Guarantee (FEG) scheme and ATO debts.

    In addition, the new report draws on the ATO’s more sophisticated taskforce data-driven Phoenix Risk Model (PRM) built from data from member agencies to identify the potential illegal phoenix population.

    Economic impact of phoenix activity

    The new 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, lost 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 estimated cost of potential illegal phoenix activity in Australia should not be confused with various tax gaps estimated by the ATO. The PwC report is not a tax gap estimate, as it has a focus on economic activity not tax effect.

    The PwC report considers the broader economic impact on the community, such as on unsecured trade creditors, employees and on other government agencies, for example Fair Entitlements Guarantee claims and unpaid state-based taxes. PwC’s estimate also includes direct compliance costs, whereas the tax gap’s focus is on revenue not received.

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    Last modified: 16 Jul 2018QC 56257