Australian consumers and businesses may be forced into a totalitarian economy if the federal government succeeds with its proposal to cap cash transactions at $10,000.
First introduced by the Black Economy Taskforce under the 2018-2019 budget review, the Currency (Restrictions on the Use of Cash) Bill advocates an economy-wide cash payment limit for goods and services in an effort to reducing money laundering and tax evasion.
If passed, the new law would take effect from January 2020 and apply to all payments of more than $10,000 to any business with an ABN.
It would include, but not be limited to, payments for major purchases such as cars, boats and home renovations.
The bill has a few exemptions – for example, cash deposits and withdrawals from a bank account with an authorised deposit-taking institution; foreign currency exchanges; and consumer-to-consumer transactions such as selling a used car – but all other payments exceeding the new limits would have to be made electronically or by cheque.
Financial penalties of up to $25,000 and maximum jail sentences of 24 months would apply to parties exchanging more than $10,000.
The same penalties would apply to cash donations and instalment plans where the total sum owed is split into a series of payments.
A “black economy hotline” would be set up to encourage people to report those cheating the system.
Invasion of privacy
The government’s proposal has been likened to George Orwell’s totalitarian state amid claims it would reduce Australians’ right to privacy and increase the red tape maze.
Institute of Public Affairs research fellow Kurt Wallace said it would be an ineffective way of tackling the black economy.
“Law-abiding citizens will have their freedom diminished while those acting illegally will continue to trade in cash,” he said.
“Restrictions on cash undermines our right to privacy by creating a digital trace of all of our transactions.”
“If everything you spend is traceable then so too is what you eat, drink and enjoy,” added Australian Conservatives senator Cory Bernardi.
“Big data becomes even bigger and it won’t be just advertising you are susceptible to.”
One Nation senator Pauline Hanson also weighed in on the negatives.
“Effectively, if you are a person who keeps cash and uses it to buy a new small car, for example, you will face the real threat of two years in jail and a fine that would likely exceed the value of the vehicle,” she said.
In addition to the cash limit, the government has proposed reporting of payments in cleaning and courier industries, building and construction, trucking, security and computer systems, creating new red tape requirements.
The Institute of Public Affairs has calculated red tape is already costing the Australian economy an estimated $176 billion a year.
A black economy generally refers to cash-based legal and illegal activities which take place outside the tax and regulatory systems such as not reporting or under-reporting income, paying for work cash-in-hand, money laundering and sham contracting.
In 2012, the Australian Bureau of Statistics estimated the cash economy accounted for 1.5% of Australia’s gross domestic product.
In its final report, however, the Black Economy Taskforce said that figure could be as large as 3% – in 2015-16, this equated to $50 billion.
Cash is already disproportionately used by lower income Australians and those in older age groups, accounting for 51% of payments by people aged above 65, compared with 37% for all age groups.
“Cash is used in the black economy because, unlike electronic transactions, it does not leave an obvious audit trail,” the taskforce noted.
“Non-compliance with taxation obligations enabled by the use of cash also provides businesses with an unfair competitive advantage by being able to offer goods and services at a discount.”
Placing a dollar-value limit on cash payments for goods and services would limit the opportunity to under-report income, charge lower prices and avoid paying taxes.
If the law is pushed through, Australia will join economies in France, Italy, Spain, Jamaica, Mexico, Uruguay and India which have already implemented limits on cash transactions.