In Budget 2018–19, the federal government responded to the Black Economy Taskforce’s Final Report, announcing an economy-wide cash payment limit of $10,000 for payments to businesses for goods and services to apply from 1 July 2019.
Any transactions made in excess of this amount would need to be made via electronic payment system or cheque.
It is hoped that such a move would help tackle illegal economic activity.
The proposal, which was under consultation until the beginning of this month, has divided the industry.
The Australian Banking Association (ABA) has largely backed the move, saying that the limit would help tackle the “black economy” but highlighted the need for any reform to be implemented carefully.
The CEO of the ABA, Anna Bligh, said that the industry was fully supportive of the federal government’s efforts, stating: “Limiting cash payments to $10,000 is an important change to make sure business[es] and individuals pay their fair share of tax and operate within the law.
“Banks are on the ground regularly talking with local business, so they know the importance of getting this policy right.
“It’s important that local shop owners, manufacturers and others are given enough time to adapt to this policy, which for many of them will be a big change to the way they do business.”
However, the ABA said that there were some key points of interest for the banking industry.
“Firstly, we note that the $10,000 limit has been set with reference to the Anti-Money Laundering/Counter Terrorism Financing framework,” the ABA’s response to Treasury said.
“We do not believe any additional reporting of cash payments or compliance by financial institutions should be introduced beyond those that currently exist under the AML/CTF regime. We believe these existing requirements on banks to report to AUSTRAC are sufficient for the government to meet its objectives.”
Secondly, the ABA wanted clarification over whether the exception to the cash limit would apply to cash distribution.
“Cash trading between financial institutions is necessary to ensure that cash can be distributed throughout the economy and should not be caught by the $10,000 limit. We would recommend that the definition is modified so that the exemption is for all cash transactions undertaken by a financial institution, not only deposits by individuals and banks,” the ABA said.
It also asked the government to consider that customers and businesses who are “heavily reliant on cash may need additional time to prepare and adapt to the proposed changes”.
“Banks and financial service providers will also need time to identify and communicate with those customers and provide them with alternatives. This is especially the case for those customers who are vulnerable,” the response read.
Finally, the ABA wanted clarification whether the legislation will apply to payments only and not any customer withdrawals of more than $10,000.
“It’s also important that banks can continue to serve the economy by quickly distributing cash where needed; therefore, it’s important an exception is clearly made when it comes to this policy,” Ms Bligh said.
Meanwhile, the Australian Chamber of Commerce and Industry (ACCI) has called into question the policy as a whole.
Its response read: “Rather than restricting cash use, the Australian Chamber notes that black market activity is best reduced by lowering the tax and regulatory burden, and removing the barriers to business and economic activity more generally. That is, black market activity is best reduced by tackling the causes of that activity.
“In that respect, cash itself is not the cause of black market activity. It may facilitate payment, but so do many other non-cash alternatives. It is for this reason that the Australian Chamber believes it is incorrect to expect a decline in black market activity following the imposition of cash restrictions.”
The ACCI voiced concern over whether the policy was “perhaps influenced more by speculative assumptions about the motives of business and individuals (perhaps better decided by the judiciary), rather than hard evidence showing a broad-based problem”.
It called for policymakers to determine the “nature and size” of the black economy problem and establish the actual amount and proportion of transactions above $10,000 that are related to illegal activity.
It concluded: “[W]e would suggest this current proposal is not the right policy focus for the government or the bureaucracy. This is especially the case because restrictions on cash use have the potential to undermine the integrity of the financial system. Cash is legal tender and its value must be protected, not undermined.
“Resources and effort would be better spent dealing with the causes of black market activity and tax avoidance which, as the Black Economy Taskforce correctly noted, are high taxes, a high regulatory burden and low profit margins.”
[Related: Budget 2018–19 released]