As New Zealand’s official economy marches ahead—reporting a GDP of $425 billion in 2024—there is another, far less visible economy operating beneath the surface. Valued at an estimated $47 to $51 billion annually, New Zealand’s black market now accounts for roughly 11–12% of the country’s GDP, according to recent World Bank data. That places it on par with the country’s total exports to China and nearly double the value of all government health spending.
Yet, for many New Zealanders, the idea that a fifth of the nation’s economic activity could be off the books remains hard to grasp.
A $50 Billion Shadow
The scale of the hidden economy has long been misunderstood. An oft-quoted figure—$13 billion—is frequently cited as the cost of the black market. However, tax expert Geof Nightingale suggests that the figure reflects only one dimension: lost tax revenue. “There is definitely a black economy,” he said in a recent interview, but he doubts it would be quite as big as the World Bank is predicting.
Nevertheless, New Zealand ranks as having the ninth-smallest informal economy among 196 countries assessed by the World Bank, meaning that while the black market is significant, it remains relatively modest by global standards.
The World Bank’s estimates are based on two economic models measuring unrecorded activity, from undeclared cash jobs and underreported income to drug trafficking and fraud. Although these models are not infallible, they offer a more robust estimate than domestic sources; neither Stats NZ nor Inland Revenue currently produces formal figures on the shadow economy.
The Cost to the Treasury
If the full scope of the black market were captured and taxed at the same rate as the rest of the economy—about 27% of GDP—it could deliver up to $13 billion in additional revenue each year. More realistically, experts argue that reducing the informal economy to Swiss levels—around 8% of GDP—could result in a $3 billion annual gain for the tax base.
To put that into context, $3 billion could fund approximately 10% of New Zealand’s total health budget or eliminate fees for all public tertiary education.
Still, the informal economy is hard to pin down, in part because it involves legal grey zones as well as overtly illegal activities. A 2018 study by Victoria University and IRD found that around 20% of self-employed income goes undeclared. With self-employed workers making up 15–20% of the workforce, this alone represents an $850 million annual tax shortfall.
Cash, Crime, and Contraband
The black market isn’t confined to tax evasion or off-the-books tradies. It spans a spectrum of sectors, with two standing out: illicit drugs and black-market tobacco.
The illicit drug trade, according to the Police Financial Intelligence Unit, generates profits of $500–$600 million annually. Methamphetamine is the most lucrative, accounting for up to $500 million. Cannabis follows at $100–$200 million, with smaller markets in cocaine and MDMA.
Estimates of cannabis’s value, however, have fluctuated wildly over the years. While some media headlines have suggested a billion-dollar industry, updated research paints a more modest picture. Dr Chris Wilkins, a Massey University researcher, used demand-side data to estimate the cannabis black market’s retail turnover between $131 million and $249 million. His findings suggest that most cannabis transactions are low-level and informal, often subsistence-based, not profit-driven. “The profits earned from selling surplus cannabis were generally not of the magnitude to afford sports cars and luxury houses,” he noted.
In contrast, the illicit tobacco trade has seen marked growth. In 2019, the black-market trade accounted for an estimated 230 tonnes of tobacco, resulting in more than $250 million in lost excise tax. By 2021, Customs reported the seizure of 185,800 kilograms of illicit tobacco, including 13,500 kilograms believed to have been grown domestically. The supply chain involves smuggling, backyard cultivation, and organised distribution networks.
Misleading Metrics
The persistence of the $13 billion figure in public debate misleads the conversation. Rather than representing the full economic value of the informal economy, it reflects a narrower scope, primarily potential tax revenue. When compared to international models and sector-specific estimates, the true size of the black market is likely closer to $50 billion.
This disconnect between perception and reality may be hindering both policy responses and public awareness. The broader the informal economy, the harder it becomes to effectively govern taxation, public safety, and fair market competition.
New Zealand’s Global Position
Despite the eye-watering figures, New Zealand fares relatively well internationally. While countries like Zimbabwe report shadow economies exceeding 60% of GDP, New Zealand’s 11–12% is modest. Still, the stakes are high. Every dollar hidden in the black market represents a dollar not spent on schools, hospitals, or infrastructure.