Abuses in the shadow economy

While the formal economy is passing through a boom phase, the shadow economy, with all the abuses it tolerates, seems to be still growing. According to a study by the Department of Economics of the Johannes Kepler University of Linz, Austria, Malta’s shadow economy grew to over 24 per cent of GDP in 2015 and is higher than that of Greece, Italy and Spain.

A recent court judgment highlighted the rampant abuse some employers and even employees are prepared to tolerate. The losers are almost always taxpayers and the employees themselves who accept precarious work conditions because they have few options. The case in question revolved around the way a foreign employer who ran a small business failed to pay one of his employees for the work done before he sacked him, even if the worker was never registered in the company’s books.

Magistrate Donatella Frendo Dimech did not only find in favour of the employee who had reported his unjust dismissal to the Department of Industrial and Employment Relations but also appealed to the relevant public authorities to curb the rampant abuse that so often characterises workplaces in the shadow economy. The magistrate gave a graphic description of the abusive work practices found in certain workplaces usually connected with shadow economy activities.

The first victims of such practices are taxpayers who have to fill in the gap of the Inland Revenue Department when rogue employers fail to pay the national insurance contributions of their employees. This abuse is not just putting at risk vulnerable employees who suffer the consequences of a shortfall in their national insurance contributions when they reach retirement age. It also amounts to stealing money that is due to the government to finance public services like health and education.

It had to be a magistrate to denounce this rampant abuse that everyone believes exists in the country but which politicians fail to address with any determination. When an economy is functioning well, it must surely be the right time to discuss the proliferation of precarious work conditions that inflict the most pain on vulnerable employees. The magistrate also rightly pointed out that it is the civic duty of the Industrial and Employment Relations Department to alert other government entities, including inland revenue and the police, when they discover cases of abuse by employers.

Perhaps even more crucial is the dissemination of education about the rights and duties of both employers and workers at the place of work. Employees not registered in a company’s books or who do not pay national insurance contributions or income tax are being abused because they often do not have better options. It is the authorities’ duty not to close an eye or even two when such abuses happen and simply sacrifice workers’ rights on the altar of economic growth.

People who pay their taxes as and when due should not be treated as an underclass in our society while cunning rogues get away with evading tax simply because public enforcement bodies fail to curb abuse.

Our usually vociferous politicians should also open a public debate on the shadow economy and the effects it has on various sectors of society including vulnerable local and foreign workers who are prone to exploitation because they lack employability skills.

This is a Times of Malta print editorial

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