Op-Ed Industry Insights: Handcuffing the Underground Economy Could Fund Utilities and Infrastructure

Rogue construction contractors who underreport their earnings or deliberately misclassify their workers to evade taxes and employment fees cost the BC economy at least $308 million a year.

This money could pay for the new patient care tower at Lions Gate Hospital.

He could buy 45 new MRI machines.

Or it could fund the entire Department of Mental Health and Addictions for almost eight years, or the Industry Training Authority for three years.

We are able to assess the cost of the underground economy in construction due to a new report from Prism Economics and Analysis, a leading public policy firm with extensive experience in analyzing labor market trends, programs and policies. Using data from WorkSafeBC, Statistics Canada and BuildForce Canada, Prism discovered that British Columbia and our booming construction sector are leaders, but not in a good way.

As a share of GDP, the underground economy is the largest in British Columbia, at 3.7%, according to Statistics Canada. And residential construction accounts for more than a quarter of underground economic activity, at 26.2%. But what exactly is the underground economy?

The underground economy is captured in two different ways. It includes small-scale repairs and renovations paid for in cash and not reported by the worker or contractor to the Canada Revenue Agency. This “monetary saving” is usually limited to small jobs, as businesses have no reason to evade GST and PST, since these costs are deductible, and owners have no incentive to omit a paper trail. on larger projects, as they would have no recourse if a liability arises.

This aspect of the underground economy is minor. The biggest problem ꟷ and the main reason for the shocking conclusions of Prism ꟷ is the misclassification of workers by unscrupulous contractors who try to avoid paying income tax, employment insurance and unemployment insurance contributions. Canada Pension Plan, workers’ compensation premiums, and other obligations under the Employment Standards Act, such as statutory overtime, vacation, sick leave, and vacation. No T4 is issued.

Indeed, the practice of labeling workers as independent operators rather than employees is the #1 strategy of dishonest construction contractors to avoid tax and employment liabilities.

And it’s a strategy that’s hurting real people, including so-called independent operators who work without the protections they deserve and are entitled to, like workers’ compensation coverage. Workers are made precarious and vulnerable.

There are also other victims. The report, which was commissioned by BC Building Trades, shows dishonest contractors save about 20% on labor, making it difficult for honest contractors to compete. In an industry where deals are won and lost in fractions, these contractors lose deals and pay necessarily higher WorkSafeBC premiums to fill the gap in the system, while their workers miss out on opportunities to earn legitimate income and support themselves. of their families.

Meanwhile, consumers who participate in the underground economy quickly learn that they cannot remedy shoddy work without admitting their own part in the illegal exchange.

It’s not just a handful of ordinary people saving a few bucks on a long overdue bathroom renovation.

Prism’s $308 million estimate is conservative and uses measurable data from WorkSafeBC. Statistics Canada calculates that the underground economy is a multi-billion dollar problem.

We therefore call on the government to appoint joint compliance teams made up of officers from the Ministry of Labour, WorkSafeBC, the Employment Standards Branch and the Canada Revenue Agency to conduct spot checks and ultimately enforce our tax and employment regulations.

Let’s stop fooling the system, and more importantly, ourselves.

Brynn Bourke is Managing Director of BC Building Trades. Send your comments and Industry Insights column ideas to [email protected].

Bonny J. Streater