Paying cash to contractors drives underground economy

Shady home contractors remain the biggest contributors to Canada’s black market economy, according to a new report from Statistics Canada.

The national statistical agency reported that underground economic activity amounted to $61.2 billion in 2018, which is approximately 2.7% of total GDP. The value of off-book activity declined by 0.8% on a year-over-year basis, following a 1.9% increase the previous year.

StatsCan noted that while the latest data on the underground economy pre-date the Covid-19 pandemic, “they provide an important benchmark to measure the full effect of the pandemic on the Canadian economy.”

Underground activity generally averages between 2.7% and 2.9% of GDP, although the proportion of off-book activity varies significantly by province.

In British Columbia, underground activity accounted for an estimated 3.7% of GDP in 2018, followed by PEI at 3.3%. In Nunavut, underground activity accounted for only 0.5% of GDP.

“Industries that are more prone to underground activity, such as crop production, residential construction, and accommodation and food services, have a larger economic presence in provinces and territories that have a higher share of underground economic activity,” StatsCan said.

Home contractors being paid under the table continues to represent the largest share of underground activity at 26.2%, followed by retail trade at 12.3%, and companies involved in finance, insurance, real estate, rental and leasing at 10.3%, StatsCan reported.

StatsCan doesn’t detail exactly how it arrives at estimates of underground activity, noting that its data collection relies on “assumptions, indicative information and various indirect methods.”

While these estimates for underground economic activity exclude certain illegal transactions, such as drug trafficking and prostitution, the data now includes unlicensed cannabis production, following the legalization of cannabis in 2018.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.