Impact of COVID-19 and Underground Economy on Australian Economy

This project delves into the intricacies of the Australian economy, examining the impact of the underground economy, often referred to as the black market or shadow economy, and its effects on revenue, GDP, and worker protections. It further analyzes the economic consequences of the COVID-19 pandemic, including the government's responses to mitigate financial disruption. The project explores the role and effectiveness of the Reserve Bank of Australia (RBA), fiscal policies, and monetary policies in addressing these challenges, such as lowering cash rates, implementing term funding facilities, and introducing debt relief measures. It also discusses the government's efforts to combat the underground economy through task forces, enforcement, and technological solutions. Overall, the project provides a comprehensive overview of Australia's economic landscape, the challenges it faces, and the strategies employed to maintain stability and foster growth.

Project

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
What is underground economy and how it could hurt Australian economy along with response
of Australian federal government in it....................................................................................1
Australian federal government and RBA’s responses to the Covid-19 crisis along with
effectiveness of fiscal and monetary policy...........................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Covid-19 is infectious disease caused by corona virus. It has affected lives and health of
many people as well as economic condition of countries (Nishiura and et.al., 2020). This present
study is based on impacts of Covid-19 on Australia. It will discuss meaning and impacts of
underground or black economy on overall economy of Australia. Further, it will discuss response
of Australian federal government in reducing black economic condition; Lastly, this report will
show impacts of Covid-19 on economy of Australia and way by which Reserve Bank of
Australia, Australian federal government, fiscal and monetary policies responded in improving
economic condition.
MAIN BODY
What is underground economy and how it could hurt Australian economy along with response of
Australian federal government in it
Underground economy: In the context of this economy it can be said that it is the part of
country’s economic activity and all economic transactions which are being done in an illegal
manner. All economic transactions as well as activities which are being done either by unlawful
trading or transactions fail to comply with governmental reporting requirements (Huynh, 2020).
Some main examples by which economy underground economy develop include: sales of street
drugs and illegal prostitution. In this context it can also be said that it becomes difficult to
determine the size of underground economies as by nature it is not subject to governmental
oversight. It varies state to state and it is considered or known as: informal economy, black
market and shadow economy.
In the context of Australia, it can be said that in this tighter governmental regulation,
several businesses are manipulating size of the Australian economy by performing illegal
economic activities. The Australian bureau of statistics estimated underground economy
accounted for around 1.5% of Australia’ GDP in the year of 2012. Some activities by which this
economy is being generated in Australia include: Drugs selling, Identify fraud, underpayment of
GST, motor vehicle fraud, money laundering etc. It has both direct and indirect impact on local
people and Australian economy as there is a loss of taxation revenue as well as abuse of welfare
system. It affects those people who are not within the regulatory systems as it affects their
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workplace relations, leads to immigration, occupational health and safety and others.
Payments are made in costs often in such underground economic activities and in cash payments,
tax and costs are avoided. People who think that system is not fair and due to lack of their trust
and confidence it leads to underground economy (Braithwaite, 2020).
Impacts of underground economy on Australian economy: In this regards, it can be said that
underground economy or illegal economic activities are associated with unemployment. People
who are unemployed or claim to be unemployed are more likely to participate in such activities.
So, it can be said that changes in unemployment rate affects the size and the growth of the
underground economy in Australia. It is also found that number of people in Australia prefers to
remain unemployed and perform such activities (Black economy Measures in Australia. 2019).
One of the main impacts which it has on Australian economy is lack or revenues. This
underground economy is tax free in the nature which directly affects revenue of the country. Due
to lack of revenue, government is finding problems in generating fund and making use of that
fund for vulnerable people or for welfare of citizens. This economy or black market is not
counted in government statistics by which Australia underestimates its GDP. Workers are not
getting legal protection. It also exploits customers of general people as people do not have
receipts, warrantees and any proof. So, they become victims of crimes and exploited. So, overall
it can be said that it is affecting local innocent people and economy of the Australia (The Black
Economy and Its Impact,. 2016).
Role of Australian federal Government in responding underground economy: The
government has started to focus on this area and for that it implemented the treasury laws and
fair work amendments according to which it can seek for penalties for contravention of
workplace laws. In the year of 2016, Australian Government established the black or
underground economy taskforce in order to develop an innovative as well as forward looking
policy response to combat to underground economy in Australia. For responding to black
economy taskforce’s final report, Australian Government also announced a whole of
government package, whose main aim is to reduce this black economic activity and having
positive impacts on the overall economy of Australia and also helping vulnerable people by fund
generated by revenue and taxes (The whole of Government Black Economy Action Plan, 2016.).
Some series of announcements include: black economy standing taskforce, extension of taxable
payment reporting systems, new ATO enforcement against black economy etc. Its final report
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explores all negative impacts which black economy has on honest businesses as well as
community as it undermines the integrity of Australia’s tax and welfare system.
In its final report and for responding this black economy, Australian government
announced main three measures in its interim report. These measures banned all electronic sales
suppression tools by which companies cannot hide their transactions anymore. It also extended
ATO audit as well as compliance programmes for around 1 year for targeting black economy
risks in a better way. It is recommend that the government is required to implement a new
effective approach for handling this complex problem so, in response, Government implemented
strict regulations, As per these regulations, new and high penalties will be applicable to all those
people or employers who dodge their obligation to pay superannuation guarantee for their
employees against GST fraud in some sectors. Its other new laws also helped it out in combating
illegal gambling as it works with states and territories for addressing all illegal phoenixing. Its
digital identity solution is also one of the effective responses which help it out to identify black
economic behaviour before it occurs. Its 2018-2019 budgets also have focused on some areas
such as: strengthening business identity verification, encouraging transition to the digital society
and disrupting illegal activities. It made use of advanced or smart technology in order to handle
black economic activities and targeting those who are doing wrong things (Tackling the Black
Economy. 2018). So, overall it can be said that Australian government is quite active and
responding to underground economy in an effective manner.
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Australian federal government and RBA’s responses to the Covid-19 crisis along with
effectiveness of fiscal and monetary policy
In the context of Covid-19 it is found that it is globally public health issue which is
affecting economy and the financial system to the great extent. One of the main reasons behind it
is countries have restricted the movement of people across border and maintaining social
distancing for protecting people against this virus. This restriction has affected economic
activities across the world. So, the main aim is to mange or improve health of population but
governments are require to focus on implementing policies which can help them out in reducing
financial disruption. So, Australian federal Government and Reserve bank of Australia
developed several effective policies for responding to Covid-19 crisis. There are some
effectiveness and roles played by Reserve bank of Australia such as:
Lowering cash rate target to 0.25%: It is stated that Reserve Bank board reduced the cash rate
to 0.25% for 2 times in the march as one of the main reasons was to boost the cash flow of the
business and the household sector as a whole (Higginson and et.al., 2020). This reduced rate also
helping out to Australia’s trade exposed industries through exchange rate. It also leads to lower
interest rate which is also beneficial for some people and community as the whole.
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Term funding facilities: Term funding facility is also helping out people in this covid-19
situation as this facility lowers funding costs for banking system. It helps people as they can get
credit to household and businesses as lower cost and lenders can also make themselves beneficial
by getting incentives and supporting credit to business. The other main effectiveness of this term
fund facility is it is being given for 3 years at fixed interest rate of 0.25% which is affordable to
all. It is also found that via Australian office of financial management, Australian government is
supporting the markets for asset backed securities. This asset backed securities is beneficial
specially for non financial institutions as well as small lenders who provide credit to Australian
household. So, overall it can be said that this term funding facilities can help out to many people
in this current pandemic situation.
Rather than these, Australian financial security authority also playing an important role
in order to help people against this covid-19 situation. It is found that this security authority
administrating changes to bankruptcy law with the main aim of providing immediate relief to
people, facing financial problems due to financial crisis and economic impacts of Covid-19. It
has also introduced temporary debt relief. Measures related to this debt relief include: 6 months
of temporary dept protection, changes to bankruptcy notices, and impacts to people who are
already bankrupt.
Effectiveness of federal and monetary policy: It is also found that Australia’s federal policy
responded fairly to this Covid-19. In the month of March and April, Australia recorded around
10,000 confirmed cases of covid-19 along with 100 deaths. At that time federal system of
Australia worked in stemming the spread of the pandemic. It coordinated with states and by
providing appropriate resources it tried to reduce spread of virus and also supporting people who
have affected already. Australia’s national and state governments also formed a national
coordinating mechanism which comprised of the prime minister all states and territories
premiers. All leaders of this national cabinet supported the government in developing or
implementing guidelines on indoor as well as outdoor gathering, travel restrictions and others.
This immediate response helped several people against this virus (Halcomb and et.al., 2020).
Fiscal policy of Australia mainly focuses on money supply and make sure that domestic interest
rate will not rise.
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It is found that due to Covid-19 economy of Australia would shrink by $10 billion, so
prime minister developed 5 year growth plan. For improving economy they focused on exploring
and making use of programmes which can give them short term benefits. There are around $70
billion Job keeper wage subsidy scheme program which can help them out in improving
economic condition to some extent. After maintaining and improving economic condition, it will
provide all benefits related to such programs and essential services (Fiscal Policy to be
recalibrated as Government sets Growth Plan, 2020). It is also stated by the Prime minister of
Australia that after making so much efforts and developing effective strategies, it will take
around 2 years for Australian economy to get back it to its pre corona virus level.
As like fiscal policy, monetary policy also plays an important role as it is following more
than 2 decades of uninterrupted economic growth. It is associated with all changes made by
Reserve bank of Australia. As it is already stated that Reserve bank of Australia lowers interest
rate for 3 years to 0.25% and 0.50% for influencing Australia’s economic activity. Monetary
policy works according to changes made by RBA and through a relation between cash rate and
other interest rates in the country. If RBA decreases cash rates then banks lowers their own
deposits and this reduced rate motivate people and businesses to borrow amount for investing.
As much amount people borrow, economic conditions improve accordingly (Exploring
Unconventional Monetary Policy in Australia, 2020). So, from this example, overall it can be
said that fiscal policy, monetary policy and Reserve Bank of Australia are playing a vital role in
responding to Covid-19 situation and it is the reason spread of virus has decreased there.
CONCLUSION
From above discussion, it concluded that black or underground economy has several
negative impacts on the local people and the overall economy of the country. It has discussed
some reasons which lead and increasing lack economic activities and among all reasons one of
the main reasons was unemployment. Further, this study has discussed some negative impacts
which black economy has on customers, revenue generation and innocent people. It has shown
effectiveness of policies, developed by Australian government in order to response to this black
economy. Lastly, it has shown effectiveness of policies of Australian federal government and
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RBA to the crisis or consequences of Covid-19 pandemic. Fiscal and monetary policies also play
a vital role in handling this current situation.
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REFERENCES
Books & Journals
Braithwaite, V., 2020. Beyond the bubble that is Robodebt: How governments that lose integrity
threaten democracy. Australian Journal of Social Issues. 55(3). pp.242-259.
Halcomb, E. and et.al., 2020. The experiences of primary healthcare nurses during the COVID‐
19 pandemic in Australia. Journal of Nursing Scholarship. 52(5). pp.553-563.
Higginson, S. and et.al., 2020. COVID-19: the need for an Australian Economic Pandemic
Response Plan. Health policy and technology.
Huynh, C.M., 2020. How does the impact of foreign direct investment on institutional quality
depend on the underground economy?. Journal of Sustainable Finance & Investment,
pp.1-16.
Nishiura, H. and et.al., 2020. Closed environments facilitate secondary transmission of
coronavirus disease 2019 (COVID-19). MedRxiv.
ONLINE
Black economy Measures in Australia. 2019. Online Available through: <
https://search.informit.com.au/documentSummary;dn=631551632642017;res=IELAPA;
type=pdf>
The whole of Government Black Economy Action Plan. 2016. Online Available through: <
https://www.ato.gov.au/General/Black-economy/The-whole-of-government-black-
economy-action-plan/>
Tackling the Black Economy. 2018. Online Available through: <
https://treasury.gov.au/sites/default/files/2019-03/Government-response-final.pdf >
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Fiscal Policy to be recalibrated as Government sets Growth Plan. 2020. Online Available
through: < https://www.smh.com.au/politics/federal/fiscal-policy-to-be-recalibrated-as-
government-sets-growth-plan-20200615-p552qh.html >
Exploring Unconventional Monetary Policy in Australia. 2020. Online Available through: <
https://www3.colonialfirststate.com.au/personal/news-and-updates/market-updates/
exploring-unconventional-monetary-policy-in-australia.html >
The Black Economy and Its Impacts. 2016. Online Available through: <
https://www.thebalance.com/black-economy-4173517>
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