Opinion
Criminal infiltration of the building industry, and the resultant violence and squandering of public monies has been widely reported over recent years. An obvious question suggests itself – why is the industry so attractive to criminals? Simply, it’s the easy opportunity for tax evasion and money laundering the industry affords.
I am a former CFMEU secretary in regular contact with current officials. Everyone in the industry agrees the situation today is dire with rorts in almost every corner. Three of the most significant problems are cash payments, sham contracting and “phoenixing”.
Today, cash payments are a pervasive problem across commercial construction. With small jobs, it’s common for two prices to be quoted: one with cash payments and the other with a more expensive “on the books” quote. On larger sites, the influx of criminals and bikies into the industry over the last 15 years has seen money laundering explode. Big contracting or labour hire outfits that are owned (overtly or covertly) by criminals are washing money from organised crime by paying the workers and small suppliers in cash. Sometimes all overtime is paid in cash, sometimes a crew of “cashies” have their full wage in cash. All sorts of combinations of official wages and cash occur – and it’s happening on every major building site.
Sham contracting, which involves the misclassification of employees as independent contractors, is as bad as it has ever been. My research suggests more than 200,000 workers across the industry are being deliberately misclassified (out of a national construction workforce of approximately 1.4 million), meaning they are not paid under an enterprise agreement and don’t receive basic protections like workers’ compensation, superannuation or redundancy payments. These workers get a lump sum hourly or daily rate, with the “compensation” that they pay much less tax than a regular employee. It also means their boss has lower costs and can underbid law-abiding competitors.
Phoenixing – where an employer deliberately sinks a company owing debts, often to the government, and instantly re-establishes it with a different legal entity – is out of control. It was a small problem 30 years ago. Today it is such a large problem that it has become an established business model in commercial construction. Major builders regularly award contracts to subcontractors on low prices they know are unworkable. But with a wink and a nod they both know crashing that legal entity mid-way through the job and re-establishing the next day under a new name is an easy fix. The main loser is federal and state governments owed millions in group tax, payroll tax, workers comp premiums and so on.
These problems were exacerbated from around 2012, when leadership changes at the main union in the industry, the CFMEU, led to a shift in the union’s attitude. Prior to that time the union and its predecessors had for many decades worked hard to tackle rorting employers. Under the control of the likes of John Setka in Victoria and Darren Greenfield in NSW, the union failed to act – allowing the rorts to continue and spread.
There have been sporadic attempts by the federal government to tackle these issues. In 1983, the new Hawke Labor government established the Prescribed Payments System of tax collection to address the rampant cash economy in the building industry. It worked for a while and improved tax collections but was scrapped in 1999 by the Howard government. In 2012, the Gillard Labor government introduced the Taxable Payments Reporting System for building industry employers, which had an immediate impact in curtailing rorts. But 2012 is a long time ago and unscrupulous employers and their clever accountants have long since developed new evasion techniques.
Since the government appointment of administrators and the clear-out of corrupt officials, the CFMEU has begun once again to grapple with these corrosive issues. In NSW, for instance, they are trying to expose and tackle the widespread scams but officials are venturing into territory where criminals have established lucrative arrangements that they don’t want disturbed. It’s also risky for the workers who are told to shut their mouths – a firebombed union car sends a strong message.
It is well past time that federal and state governments recognised the depth of the problem. The public are rightly frustrated that seemingly no matter how often rorts in the industry are exposed, nobody ever seems to be prosecuted. The real problem with government, the bureaucracy and the legal system is that it is a slow-moving behemoth. Most building projects have finished before charges are laid and the offending entity has long since been liquidated.
One step forward would be the establishment of multidisciplinary squads of specialist police, ATO, forensic accountants and construction insiders, established at both the state and federal level and given coercive powers that compel individuals to cooperate with investigations. Not an anti-worker agency like the Howard government established but a dedicated team of specialists to target the tax scams. Tens of billions of dollars are at stake. If governments finally treat the issue seriously we will have a safer, cleaner, more productive industry and lots of crooks will be in jail where they belong.
John Sutton is a former national secretary of the CFMEU and author of the study No ABN: No Start.
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