Guest Post: National Accounts and Prostitution

Wendy Lyon writes on the requirement under new national accounting rules to include the value added from illegal activities where transactions are “mutually agreed”:

The Irish Examiner reports today that Ireland is to begin figuring revenue from prostitution into its gross domestic product. According to the Examiner, the Central Statistics Office is liaising with Gardaí to determine “how best to quantify the levels of activity” in this and other underground economies, such as the drugs trade.

This step has been taken because of a new requirement under the European System of Accounts, effective from September of this year, that “Illegal economic actions shall be considered as transactions when all units involved enter the actions by mutual agreement”.

Strictly speaking, prostitution does not actually fall into this category. There is no law against trading sex for money in Ireland, although there are laws against some of the activities associated with it. One of these is living on the earnings of another person’s prostitution and so income from pimping is illegal; but those who sell sex independently – an unknown percentage of the Irish sex trade – do not, for that reason alone, commit any crime.

More relevant, and contrary to the assumptions of Davy chief economist Conall MacCoille as quoted in the Examiner, is that some of this revenue is already being reported. Sex workers are not necessarily tax evaders: they can report their income in the same way as any other non-PAYE worker, and many do. (In the UK, where selling sex is also legal but unregulated, there is even an unofficial website providing information on how to go about it.) It may not be explicitly identified as income from prostitution, however, because of the stigma involved.

It is unclear whether the CSO will make any attempt to distinguish between reported and unreported prostitution income. If not, the new rules could lead to double-counting.

Also unclear is how the CSO will implement the ESA criterion that “all units involved enter[ed] the actions by mutual agreement”. Logically, this would require that revenue from voluntary prostitution be counted, while revenue from forced prostitution would not. The latter would fit the category of illegal income but, again, there is very little hard evidence as to the extent of it in Ireland. Again, the question arises as to whether or how the two will be distinguished.

Finally, there is no indication as to how the amount of revenue will be calculated once the “levels of activity” are determined. How is the CSO to get information on the quantity and cost of commercial sex transactions? Gardaí may be able to monitor the number of men entering certain premises known as prostitution sites, but in the absence of a wholly unrealistic degree of surveillance, they’re unlikely to have a clear picture of the amount of money changing hands afterward.

These difficulties can be partially attributed to the dearth of real research into the Irish sex industry – particularly since the advent of the internet, the medium through which most of it is believed to be conducted. Apart from a few unpublished academic dissertations, there is no independent research at all. The most widely quoted study – the Immigrant Council of Ireland’s 2009 report Globalisation, Sex Trafficking and Prostitution – was funded by the Religious Sisters of Charity in furtherance of what would become the Turn Off the Red Light campaign; its methodology consisted of interviews with 12 women and estimates drawn from reading advertisements and client reviews on the Escort Ireland website. This research was never robust enough to serve as a basis for calculating revenue, and in any case is almost six years out of date.

Of course, the lack of concrete evidence has never been a bar to estimations before. Anti-prostitution campaigners have long cited €250 million as the annual value of the Irish sex trade, although the source of this figure is unknown. (It is usually attributed to the Criminal Assets Bureau, but appears nowhere in CAB’s annual reports and CAB did not respond to my request for confirmation of it.) Nonetheless, it has dutifully appeared in newspaper headlines and even the text of a Seanad motion simply on the basis of unsupported NGO assertions of its veracity. There is a danger that those involved in the calculation may feel under pressure to produce estimates in line with the received wisdom.

The interest in the subject generated by the Turn Off the Red Light campaign would have been an ideal opportunity for the government to institute genuine independent research. In fact, this is what has happened north of the border: faced with the conflict between anti-prostitution campaigners’ claims of widespread forced prostitution, and the PSNI’s assertion that most of the northern sex trade is independent in nature, Stormont Justice Minister David Ford has commissioned researchers from Queens University Belfast and NUI Galway to interview sex workers and clients operating in the Six Counties. No such move was deemed necessary by former Minister for Justice Alan Shatter, nor is there any indication that Frances Fitzgerald intends to follow Minister Ford’s lead.

It is unfortunate enough that legislative changes would proceed in the face of such a knowledge gap, but the ESA obligation makes the need for adequate research all the more necessary. Without it, the estimation of “prostitution revenue” will be nothing but an exercise in smoke and mirrors – serving only to further distort our GDP and provide fodder for more lurid, unsubstantiated newspaper headlines.

31 replies on “Guest Post: National Accounts and Prostitution”

European Tax authorities must be really scraping the bottom of the barrel if they are going this low to find data which will boost a country’s GDP figures.

Absolutely hilarious… if we can’t find growth data in the visible economy… lets include data from the shadow economy.

Up next income from Drug trafficking / stolen car parts / fuel laundering to be included…. anything considered to show Europe is growing.

Friedrich Schneider, a professor of economics at the Johannes Kepler University of Linz, Austria, has long specialised in studying shadow or black economies and he estimates Ireland’s at 16% of GDP compared with Italy’s 27%.

He has said in one paper that there are no reliable estimates of the commercial sex market.

Some estimates put the Dutch sex industry at 5% of GDP.

However why just pick on sex?

Prof Kepler looks at various data in an economy: use of cash – – Spain is the most popular country for €500 notes, estimated underpayment of VAT etc

Cautious estimates of the black economy could be included in GDP but that’s not as sexy as sex 😯

Perhaps if Wendy had actually read my quote in the Examiner she might have noticed that at no stage did I mention prostitution, one way or the other, or make any assumption on whether the participants in the industry pay income taxes or not.

Perhaps she might have contacted me to confirm what exactly I meant – but that would be a curtesy only too often lacking in most of the discussion in the Irish economy blog. The economic activity I was referring to when speaking to Vincent was specifically were those where illegal activities where tax revenue is not paid. So as the CSO incorporates the activity it will push up on GDP, but have no impact on taxation.

In any case, I would be delighted to see some estimate based on facts of how much revenue is made in this industry and how much is paid in tax.

Hello Sporty,

I think you will find illegal drugs are also to be included, the obvious trade being a switch into high vice sovereign bonds on the debt ratio gains.

This may be of assistance:

“One of the improvements is to include illegal drugs and prostitution activity in GDP; this
article provides a technical overview of associated methodology. This article does not
provide a numerical assessment of the impact, this can be found in the article ‘Impact of
ESA95 changes on current price GDP estimates’. “

Cathal, I apologise if I inadvertently misrepresented what you said to the Examiner. I would point out however that the article refers repeatedly to drugs and prostitution revenues and then goes on to quote you as saying “the fact is that this activity is not taxed”, so I think many readers would interpret it the same way I did. Perhaps the journalist did as well.

I too would love to see facts-based estimates of the amounts involved. At the risk of stating the obvious, though that would require first of all gathering the facts about the Irish sex industry, and that’s something Irish policy-makers haven’t seemed to feel there is any need for.

The black economy here is huge. I’d say 16% is an underestimation. Is there a single tradesman in Ireland that doesn’t give a discount (of, say, 23% to pull a figure out of the air) for cash payment?

Never mind independent garages, taxi drivers, Google, etc., etc.

But, of course, who am I to impugn the vital forces of capitalism when we all know that public sector workers are the ones robbing the nation blind and entirely responsible for our national crisis.

Prostitution is practiced throughout Ireland from the smallest towns to the largest cities. I see no evidence that it goes on at a scale that would make a meaningful contribution to tax revenue.
Small businesses doing under the table transactions can be tracked in numerous ways if the Gov’t has the will to do that. They all buy supplies and in many cases their purchases are tracked by retail/wholesale businesses to calculate discounts based on volume.
Many countries do a good job at controlling tax evasion/avoidance. Italy is not one of them and although Ireland has been making progress, in these trying times there has been some slippage.
The question has to asked “Are there votes in cracking down ?”. Probably not on balance.

@ Unfeasiblycharming,

Many thanks for that link, most informative…. if there is enough money in an illegal activity… perhaps the establishment will move to legalise it,, and then make taxation income from it.

After all money talks!!

@Michael Hennigan

“Friedrich Schneider, a professor of economics at the Johannes Kepler University of Linz, Austria, has long specialised in studying shadow or black economies and he estimates Ireland’s at 16% of GDP compared with Italy’s 27%.”

I often wonder about the figures used for the black economy, in terms of GDP.
If, for example , a large minority operate in ‘black’ economy, they must spend the money earned on largely local consumption, so that the consumption must be ‘laundered’ into the GDP figures at some point.

Either way, even if the GDP figures are increased as a result of capturing illegal activities, such an increase would be merely statistical, with no effect on the economic well being of the population.

I would wonder about the economic benefit of going to any great lengths to get increased data in this difficult area.

[Off Topic]
On a new legal economic activity going on in the country, the installation of water meters.

I had reason to do a lot driving in Dublin estates over the weekend, and the amount of disruption and cost is quite extraordinary. The installation of 1m or so meters on the road outside every house in the country has to rate as a very doubtful enterprise. However, I was glad to see the workers today (Saturday), being occupied whether gainfully or not.

Legal / Illegal are social constructions – hence what is illegal today may be deemed legal tomorrow and vice versa … referenda anyone?

Trades are trades – what is so significantly different between sex trades and CFDs?

Decriminalize, monitor, regulate, and tax.

Benefits all round (particularly for sex workers and young working class weed heads who escape a criminal conviction; bad newz for white collar kriminals)

I have read estimates of £60 billion for UK drugs/sex (no data on ‘rock & roll’)

…. do the ratio.

In the mid nineties during a recession a right wing party, the Conservatives, gained power in the Province of Ontario Canada.
There are lessons in the linked paper for Ireland as our gov’t scrambles to reduce deficits. Of particular note is “Create a Crisis” Snobelen who was dealing with education. One could say it reeks of cynicism but it reflects reality. Well foot noted and taken down frequently due to copyright objections.

This is a companion piece to the link in the comment above.
The meat and potatoes of lower taxes and higher debts.

The Economist in 2004 in tribute to the principled pragmatism of Walter Bagehot, one of its early editors, advocated the legalisation of prostitution.

Sweden, once famous as the country of ‘free love’ took the path of Puritanism in contrast with Germany, which legalised commercial sex in 2001.

H.L. Mencken (1880-1956), the American journalist and writer, said that Puritanism is “the haunting fear that someone, somewhere, may be happy.” He also made an excellent point about diversity: “The great artists of the world are never Puritans, and seldom even ordinarily respectable. No virtuous man – that is, virtuous in the Y.M.C.A. sense – has ever painted a picture worth looking at, or written a symphony worth hearing, or a book worth reading.”

Of course there are legitimate issues here such as human trafficking, abuse of women and so on – as there were when well-meaning moral delusionists of America’s temperance movement succeeded in prohibiting the sale of alcohol and when a failed so-called ‘war on drugs’ in the US criminalised a generation of young men.

On GDP, Joseph Ryan is correct when he says that part of the black economy transactions are picked up and the OECD linked article from unfeasiblycharming says: “Given an explicit estimate of illegal activities, the only one way to avoid double counting output is careful research into the contents of the basic data used for the regular compilation of the national accounts and consistent recording of adjustments for illegal activities in all three approaches to GDP, allowing for possibly different implicit coverage.”

The trend is important and in recession periods, illegal activities are likely to rise.

Dear Wendy – my name is Conall. I’m not responsible one way or the other for the article – my own quotes thats all

Incidentally Wendy – if you manage to read my name right this time – perhaps to clear up this whole issue you could give us your best guesstimate of the percent 0-100, of participants in the prostitution industry in Ireland, or in the UK, who pay income tax.

As you say, many do pay income tax in the UK apparently (not sure what the evidence for this is>) but then again this could also mean many do not. I’m sure many would suspect the % who do not is close to zero. But perhaps you can enlighten us?

Given that the main point of my piece was that we don’t have sufficient knowledge of the industry to obtain accurate statistics on it, it should be apparent that I am not in a position to provide any such estimates. Anecdotally, from speaking to people who work in the industry, those who operate independently indoors appear to generally pay tax on at least some of that income (which is logical, as there are relatively high sums involved which would surely be difficult to completely hide from the Revenue). I would share the assumption that those in the lower end of the industry, generally street workers engaging in sex for survival or to supplement their social welfare payments, are unlikely to be paying tax on that income. There is also a middle category, persons working non-independently indoors – it’s reasonable to think that those who are employed as if theirs was a “legitimate” business (eg, massage parlours that are really brothels) may be in the PAYE system. This is one of the reasons we need decent research, which is sorely lacking in Ireland – the sex industry is not homogenous, demographically or operationally, and which sector someone is working in may make a big difference both to the amount of income they earn and whether they pay tax on it.

I worked for HMRC ( UK tax collectors essentially ) until early this year – iirc there were about 4-5,000 with ‘sexy’ occupations on their tax returns. Many of those won’t be prostitutes ( eg glamour models, strippers ) and some prostitutes will come through on tax returns as well paid carers or hairdressers. It’s a mess establishing anything.

So with no evidence, just on pure feel and memory, I’d guess about 7% of UK prostitutes pay income tax, but they could account for about 40% of the income tax that could be collected as these are the higher earners whose affairs have to be straight. They can and do get pulled for checks.

I love the phrase ‘guesstimate of the percent 0-100’ : just in case anyone was going to pluck a number outside that range, smiles

Germany had legal and regulated prostitution in red light districts, blatantly in your face, such as St Pauli in Hamburg for centuries. In contrast to Hamburg there was Lubeck where prostitution was legal and regulated but discreet to the point where only the locals knew where the brothels were. Public health was the over riding regulatory issue, regular health inspections were conducted by doctors and nurses.
If the Irish gov’t is to get into the prostitution business I would suggest more emphasis on public health and less on tax revenue. We have been masters of the cover up for centuries, turning a blind eye to drunk driving and other anti social activity. Places like Calcutta, Lagos, Rio de Janeiro have brothels much like Ireland has betting shops. We do not want a brothel ridden Ireland we want light touch regulation with public health being top of mind.

I would suggest that Marijuana which is now a nation wide cottage industry rivalling Poteen is a candidate for legalisation for medical uses. As you know Irish doctors prescribe alcohol frequently, Marijuana would fit in there nicely. Reminds me of the German joke where the old lady is asked by her doctor what she drinks. When my blood pressure is high I drink red wine, when it is low I drink white. For headaches I drink cold Schnapps, for arthritis I drink lukewarm beer. Do you ever drink water? I have never been that sick.

bit off thread …

@Brian Woods Snr and other reasonably sane ….

The Impossibility of Growth Demands a New Economic System

Why collapse and salvation are hard to distinguish from each other.

by George Monbiot

‘To succeed is to destroy ourselves. To fail is to destroy ourselves. That is the bind we have created. Ignore if you must climate change, biodiversity collapse, the depletion of water, soil, minerals, oil; even if all these issues were miraculously to vanish, the mathematics of compound growth make continuity impossible.

Economic growth is an artefact of the use of fossil fuels. Before large amounts of coal were extracted, every upswing in industrial production would be met with a downswing in agricultural production, as the charcoal or horse power required by industry reduced the land available for growing food. Every prior industrial revolution collapsed, as growth could not be sustained(3). But coal broke this cycle and enabled – for a few hundred years – the phenomenon we now call sustained growth.

It was neither capitalism nor communism that made possible the progress and the pathologies (total war, the unprecedented concentration of global wealth, planetary destruction) of the modern age. It was coal, followed by oil and gas. The meta-trend, the mother narrative, is carbon-fuelled expansion. Our ideologies are mere subplots. Now, as the most accessible reserves have been exhausted, we must ransack the hidden corners of the planet to sustain our impossible proposition.

Read on:

I feel a new quango is needed to address this issue of possible underpayment of tax by those working in the prostitution sector. A section of the Revenue Commissioners and some staff from the HSE could be seconded to this new body. As Leonard Cohen sings “… there’s gonna be a meter above your bed that will disclose, what every body knows” How about a new name – An Bord Slapper (ABS for short). Furthermore, it should be mandatory that foreign prostitutes coming to work in Ireland should be taxed at the point of entry.

I would put the pre 2008 Financial Regulator along with his colleague the head of CBoI in charge of prostitution. They were masters of the light touch, the girls would be delighted. Most prostitutes in Ireland are natives. The exotic ones in Dublin are from Moldavia and Ukraine and charge a premium. The odd one shows up in Listowel and Killarney during horse racing weeks.
It is as sad a story as the Irish girls in London, earning a few bob to support young children and poverty stricken parents in the Gaeltacht, in pre EU days. The governments interest may be sparked by what they know will happen to the economy now that we have “recovered”. Withdrawing from the EU/ECB influx of liquidity will be worse than withdrawing from narcotics.

Mickey Hickey you never disappoint

“parents in the Gaeltacht” Now they are to blame for prostitution in London.

Time to give it over Uncle Tom.

“parents in the Gaeltacht” Now they are to blame for prostitution in London.

Nora Mharcais Bhig was the trailblazer

Maybe Budget 2015 will contain a tax incentive for those willing to go into the sex industry?

I was on the edge of putting down Kerry, Galway, Mayo and Donegal but decided on Gaeltacht finally so as not to make too many enemies.
Here is a partial justification, referencing congestion and economic deprivation.

I have nothing against Gaeltachts, one my grandfathers came from Dingle. I have a purist relative who headed up the failed name change campaign to An Daingean ui Cuis.

You are a fount of literary knowledge.

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