Days after the NSW Government agreed to crack down on illegal brothels, an industry lobby group reports that NSW's sex black market is worth $500 million a year.

A report by the NSW Adult Business Association (ABA) said 800 massage, sauna and acupuncture businesses were moonlighting as illicit sex services.

The report examined classified advertisements and sent questions to more than 70 Sydney councils to establish that there were 782 businesses offering illicit sex services.

"The situation we've got is we've seen a proliferation of illegal brothels in Sydney's suburbia. Clearly the Government's strategy is not working," said Chris Seage, spokesman for the ABA, which is made up of 51 large commercial brothels in NSW and the ACT.

Mr Seage, an accountant and former Australian Taxation Office employee, said an average yearly profit for an illegal parlour would be about $650,000, representing $520 million in gross revenue across the state.

The ABA hired private investigators to contact as many of the suspected businesses as possible, asking what services they provided. For a business to make the ABA's list it would have to admit to providing extra sex-related services.

"They would ring up and say they saw the ad in the paper, and then would inquire about the services ... if they mention a hand job, or full service, that establishes that an illegal operation is in practice," said Mr Seage.

The problem was highlighted recently when it was revealed that nine Sydney councils paid $25,000 since 2004 employing private detectives to have sex in illegal brothels, in order to gather sufficient proof to pursue the businesses in the courts.

In January Ku-ring-gai Mayor Nick Ebbeck took an illegal brothel on the Pacific Highway in Roseville to court in an attempt to close it down.

He sued the owners for $37,000 in the Land and Environment Court and had them closed down January, only to watch the business reopen the next day.

He criticised State Government planning legislation, saying it made it next to impossible to police the black market in sex.

"If I want to go down and close my local restaurant because they've got cockroaches in their food, we can close them down on the spot.

"But if I want to close down a brothel, I can't ... I've got to go through a lengthy procedure."

Concerns over the difficulties councils faced in shutting down such illegal business were first raised five years ago by the State Opposition, Mr Seage said, but the Government voted down attempts to change the legislation.

The Opposition twice proposed legislation that would allow councils to shut down illicit brothels and would shift the burden of proof in court cases onto the brothel owner.

Mr Seage said the finished report would be handed to the Australian Taxation Office and State Government by the end of the week, and the ABA would ask them to crack down on the sex black market.

A spokeswoman for the ATO said it did not distinguish between legal and illegal brothels and it was only concerned with tax compliance.

During the last financial year the ATO had recovered $25.2 million in revenue from non-compliant sex businesses, she said.

On Sunday Premier Morris Iemma announced that, if re-elected next month, he would give courts the power to cut off electricity and water to illegal brothels.

He also promised to streamline the complaints resolution process.

"We'll cut down the complaints process to ensure residents with real, legitimate concerns about the sex trade in their neighbourhood can get immediate action," he said.

Mr Seage said the industry was suspicious of Mr Iemma's planned legislation, and said that, if the Premier was so concerned, he should bring the legislation in now, not after the election.

"We don't trust [Mr Iemma] because twice he has rejected legislation brought before Parliament."

However, a spokesman for Mr Iemma, Ben Wilson, said Parliament was currently prorogued until after the state election, meaning no new business could be introduced.

The Government's legislation was also "significantly different" to previous Opposition legislation, he said.

"It empowers more authorities to take action through the Sydney Harbour foreshore, Redfern, Waterloo ... and it provides a wider range of options for them to take action."

Law academic from the University of Technology, Sydney, Penny Crofts, who specialises in the regulation of the sex industry, said she disagreed with the criticisms of the ABA and moves by both parties to legislate against illicit sex services.

She said the number of illicit sex services was more likely about excessively harsh council regulations.

"A lot of brothel owners might have been operating for quite a long time, and they've been told if you applied [for a Development Application] then the council would know you exist and they'll shut you down," she said.

"It's a catch-22 situation. Why would they apply when they already operate and councils don't know they're here, whereas as soon as they apply they'll come and shut them down?"

She said an example of a council working constructively with the industry to eliminate lack of local regulation in the industry was the City of Sydney, which would not shut down unregulated sex businesses.

Instead, she said, the City of Sydney would attempt to work with businesses to help them become regulated, often providing alternative locations for their business if their current location was deemed inappropriate.

Cr Ebbeck said that was not a viable solution and that he would prefer to see state legislation that would allow him to immediately shut down illegal sex businesses and force them to prove their case in a court before they could reopen.

Top 10 NSW local government areas for illegal brothels*

1. Sydney
2. Marrickville
3. Parramatta
4. Bankstown
5. Gosford
6. Canterbury
7. Fairfield
8. Canada Bay
9. Leichhardt
10. Manly

*According to ABA report.

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