Drummond Report spotlight on underground economy spotlight ‘on point:’ Ontario Construction Finishing Industries Alliance exec

The biggest catalyst of the underground economy is the misuse of the independent operator category in the Workplace Safety and Insurance Board (WSIB) premiums, says Jeff Koller, Ontario Construction Finishing Industries Alliance industry compliance officer. The underground economy was mentioned by the Commission on the Reform of Ontario’s Public Services, chaired by former TD economist Don Drummond.

Recommendations on ways to combat the underground economy in the recent report by the Commission on the Reform of Ontario’s Public Services are on point, says an industry compliance officer and expert.

Jeff Koller, Ontario Construction Finishing Industries Alliance industry compliance officer, pegs Ontario’s underground economy to be over $700 million.

He says the biggest catalyst of the underground economy is the misuse of the independent operator category in the Workplace Safety and Insurance Board (WSIB) premiums.

“You’ve got a lot of employers that want to avoid their statutory source deduction obligations,” he said.

The report addressed the underground economy, saying that it “creates an unfair tax burden for taxpayers and makes it difficult for legitimate businesses to remain competitive with those participating in the underground economy.”

It says that Statistics Canada estimates the underground economy was about 2.2 per cent of Canada’s gross domestic product in 2008, about $36 billion.

This allows companies to undercut their competitors, said Koller.

“Every level of government probably is unwittingly contributing to the underground economy,” he said, pointing out that in order to win the bid, the general contractor will look for the lowest cost sub trades, who then may further subcontract out the work.

It was recently legislated that as of Jan. 1, 2013, there will be mandatory WSIB coverage for independent operators and some other individuals carrying on business in the construction industry.

Provided it can be enforced properly, Koller believes it will be a big help against the underground economy.

The Commission, chaired by former TD economist Don Drummond, made numerous recommendations across Ontario’s sectors, such as health care and education, in an effort to reduce the province’s deficit, which is expected to hit $16 billion this year.

One recommendation is to link more databases to reported transactions for tax purposes. Actions would include: implementing legislative changes to better enable data sharing (e.g., permit, licensing and registration information) and database matching across ministries, municipalities and federal government departments; creating a wealth indicator database as done in Quebec; expanding reporting requirements for certain financial transactions; and entering into an underground economy agreement with the federal government to better share information and invest more resources in co-ordinating and strengthening compliance efforts to combat the underground economy.

Koller said better enabling data sharing should be done right across all ministries and all levels of government.

“It would probably make fighting the underground economy a lot easier because where a company or employer might appear on one database; it might be completely off the radar for another agency.”

Other recommendations include developing a public awareness campaign about the impact of the underground economy; create employee deeming provisions where businesses substitute independent contractors for employees to avoid paying Ontario’s Employer Health Tax; developing a concept of self-certification point-of-sales software; reviewing the adoption of government-authorized sales-recording modules to address “zapper” software that removes a vendor’s record of sale; and establishing a forum to discuss emerging issues and trends in the underground economy and innovations and best practices for addressing them.