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Law to restrict cash payments to $10,000 has many critics

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By John Beveridge - 
Cash payments $10000 law Australia

We’re from the government and we’re here to help.

Former US President Ronald Reagan described these as the nine most terrifying words in the English language and his lack of trust for bureaucracy seems to have a really strong hold here in Australia as well.

The latest target for animosity is the proposed law to limit cash transactions to $10,000 or less – a proposal that is cast as a way to stop the cash economy, money laundering by criminals and tax avoidance.

However, many critics have been highly critical of the proposed law, saying that it was a way to stop people spending their own money and a way to force people into the arms of the big banks rather than using cash.

Heavy jail terms for spending your own money

The penalties of up to two years jail for each offence have also drawn a lot of criticism for being very heavy handed, given they could apply to a normal citizen who is buying a car for $11,000 in cash.

It is simply seen by some critics as the government being far too intrusive into the lives of everyday Australians.

The criticism has had the desired effect, given the law was meant to be in place by now but has now been put on the back-burner.

Law has been postponed due to a Senate inquiry

The cash ban bill passed the House of Representative late last year and was due to start on 1 January, but is now slowly weaving its way through a Senate inquiry which has attracted thousands of submissions.

One of the themes of those submissions is that by stamping out larger cash transactions, the law will leave people’s savings trapped in bank accounts, where they will be vulnerable to negative interest rates.

There is a certain logic to the criticism given that Australian official interest rate has fallen to 0.75% and could easily fall another couple of notches his year.

Fears that money could be trapped by negative interest rates

Already deposit rates on some bank accounts have fallen to zero, meaning that it is not too difficult to imagine a scenario in which depositors need to pay the bank just to keep their bank accounts open.

Customers would be locked into this scenario because they would no longer be free to keep their money at home in the form of cash for large transactions.

The conspiracy theories of government striving for control over people’s behaviour have gathered so much credence that the big guns have now been rolled out in the form of the Reserve Bank’s head of payment policy Dr Tony Richards, who has described some of the conspiracy theories about cash being withdrawn entirely as “far-fetched.”

Worries about total withdrawal of cash overblown

Dr Richards rejected the view that the proposed law was “a precursor to the imposition of negative interest rates and the government deciding to withdraw cash from circulation”.

“With respect, I think some of those concerns that you’ve alluded to are a little far-fetched,” Dr Richards told the Senate inquiry.

He said that RBA Governor Dr Philip Lowe had already indicated that negative interest rates in Australia were extremely unlikely and that even countries that had negative interest rates had continued to pay interest on deposits.

Dr Richards said the notion that cash might be about to be withdrawn from circulation “seems a little far-fetched” and that “The Reserve Bank and the government have both said in different contexts recently that cash is a very important part of our payment system and our economy.”

As any well-trained conspiracy theorist would counter, they would say that, wouldn’t they!

Australians already stockpiling huge amounts of cash

Dr Richards also outlined some interesting statistics about the way cash is used in Australia, with an incredible amount of cash taken out of circulation and stashed.

He said that of about $80 billion worth of cash in circulation daily, around 25% of that was used for buying and selling, while the rest was being held by Australians.

“If you just take the numbers literally, it would be roughly $2,000 [per household], but in actual fact it’s probably the case that most households have very little and a few households have a lot, and maybe people overseas hold Australian dollars,” Dr Richards said.

The black cash economy is estimated to cost the government about $50 billion a year through a wide variety of activities including underpaying wages, paying for work cash-in-hand, under-reporting income, sham contracting, phoenixing, identity fraud, ABN and GST fraud, illicit tobacco, money laundering, unregulated gambling, criminal acts, counterfeit goods and illegal drugs.

However, there are strong doubts that the new law would make too much of a dent in these illegal activities and might even make them more sophisticated.

Bitcoin and other digital currencies not covered

For one thing, it does not cover any payments by digital currencies such as Bitcoin, leaving a gaping hole for crooks to exploit.

The other thing that would be achieved is that AUSTRAC – which currently monitors all bank deposits above $10,000 – would end up greatly expanding its activities to cover cash transactions for a range of other cash activities such as buying art, jewellery, antiques or luxury cars.

Check out kids could end up in jail

The Law Council of Australia said it was worried about “unintended consequences” from the strict application of the law such as young and inexperienced retail sales people risking jail for simply accepting a cash payment for goods above $10,000.

There have also been concerns raised by industries such as legal prostitution that they already find it difficult to get access to bank services and need to continue operating in cash.

One thing is for sure, the law has created plenty of discussion and there will be plenty more of that before the Senate inquiry hands down its report, which is due by 7 February.