Canada’s underground economy was estimated to be $68.5 billion in 2021, representing 2.7 per cent of the total GDP, according to a report from Statistics Canada.
The report shows that in 2021, the underground economy experienced significant growth of 4.8 per cent in real terms, primarily driven by an 18 per cent surge in underground economic activity related to investments in residential structures.
In contrast, the underground economy experienced a 4.5 per cent decline in 2020, mainly due to reduced underground economic activity in household final consumption expenditure, which dropped by 8.4 per cent.
The underground economy is defined as consisting of market-based economic activities, whether legal or illegal, that escape measurement because of their hidden, illegal, or informal nature, according to the report.
StatCan has excluded some illegal activities, such as those related to drugs (except cannabis) and prostitution in the report.
The StatCan report shows that in 2021, the residential construction industry played a significant role in the underground economy, contributing 35.0 per cent or $23.9 billion, making it the largest contributor.
The next in line were the real estate landlords, responsible for 12.7 per cent, followed by retail trade at 10.5 per cent and accommodation and food services at 7.3 per cent.
According to the report, together, these four industries accounted for about two-thirds of all underground economic activity in Canada.
The report highlights that underground economic activity in the residential construction industry saw a 32.8 per cent increase in 2021. This matches the 31.3 per cent increase in business investment in residential structures across the entire economy.
In 2021, nearly 45 per cent of unreported income, totaling $30.6 billion, went to employees as wages. This was about 2.4 per cent of all employee compensation in the economy. Meanwhile, incorporated business owners received about 30 per cent, and unincorporated business owners got around 24 per cent of the remaining underground income.
The StatCan report revealed that the underground economy linked to household spending was $38.3 billion in 2021. Over a quarter (26.3 per cent) of this came from purchases of alcohol, tobacco, and cannabis, which represented four per cent of total household spending in the economy.
The next contributors to the underground economy in household spending were rental fees for housing (19.5 per cent) and food and beverage services (18.8 per cent).
According to the report, Ontario led the nation with the highest value of underground economic activity in 2021, totaling $26.9 billion. Quebec followed with $15.5 billion, while British Columbia and Alberta reported $11.1 billion and $6.8 billion, respectively.
These four provinces collectively represented 87.9 per cent of the total underground economic activity, which closely mirrored their contribution to the overall economy at 87.1 per cent.
However, Prince Edward Island and British Columbia had the highest proportions of underground economic activity as a percentage of their total economy-wide GDP in 2021, with 3.4 per cent and 3.2 per cent, respectively. In contrast, Nunavut had the smallest share at just 0.4 per cent.
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