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The IPA has said that the government’s cash mandate may result in additional costs for businesses that previously switched to digital-only payments.
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SMEs dealing with ‘conflicting messages’ on cash payments, says IPA
10 January 2025
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A move to mandate that businesses must accept cash when selling essential items conflicts with previous calls for small businesses to move to digital payments, according to the Institute of Public Accountants’ general manager of technical policy, Tony Greco.
Treasurer Jim Chalmers released a consultation paper on the proposed cash acceptance mandate last month.
Greco said that while there are circumstances where cash is necessary, such as during outages, this government push also conflicts with previous messaging received by smaller businesses to move to digital payments.
“We have been encouraged to move into the digital world from all sources including the government. Small business has to some extent begrudgingly been forced or encouraged to adopt the digital way of doing things including interacting with government agencies,” he said.
He added that COVID-19 also accelerated the community’s acceptance of digital options as the primary form of communications and payment systems.
“We’ve been telling small business that digital is the future and some of them who are now digital-only now have to go back to providing cash,” he said.
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“We’re seeing lots of conflicting messages around this.”
Greco said while the government’s decision to mandate cash goes against current trends, it was understandable based on protecting vulnerable consumers and in instances of internet or software outages.
However, he warned that in some cases it would increase costs for businesses, particularly those that had previously switched to digital payments due to the additional costs associated with handling cash.
“Given the current environment, not all businesses will be able to pass those costs on,” he said.
In its annual report, the Reserve Bank of Australia noted that while Australians have significantly reduced their use of cash for everyday transactions, they still use cash as a backup payment method.
“Ensuring Australians have confidence in their banknotes is critical to meeting these needs,” it said.
Treasurer Jim Chalmers said that mandating cash for essential purchases meant those who rely on cash would not be left behind.
The government’s consultation will seek views on key aspects of the cash mandate including the definition of essential goods and services, which businesses the mandate should apply to and whether there should be transaction caps or time limits.
Measures for addressing shadow economy
Despite the sharp drop in cash transactions, Greco said the actual number of banknotes in circulation is near record highs, suggesting that more may need to be done to combat the shadow economy.
“There are about 926 million $50 notes in circulation – or 34 for every man, woman and child. There are another 483 million $100 notes in transaction, or 18 for each Australian,” Greco said.
“There are still so many banknotes in circulation despite the decline in usage because at least three-quarters of cash is not actually used for day-to-day transactions.”
RBA estimates suggest that anywhere from 55 per cent to 80 per cent of banknotes are hoarded for a rainy day or savings.
“About 7 per cent to 11 per cent of banknotes are used for illegal activity such as tax evasion, drug manufacturing and dealing, and other black-market activities,” Greco added.
“Another 5 per cent to 9 per cent are lost, while the remaining 9 per cent to 26 per cent are used for transactions, the RBA estimates.”
Greco said the IPA still supports the recommendation from the Black Economy Taskforce to make it an offence for businesses to make or accept a cash payment of $10,000 or more.
“This prohibition would exclude transactions between individuals not operating a business,” Greco said.
The Black Economy Taskforce recommended that the government introduce such a measure to tackle tax evasion and other criminal activities.
Most countries already have a threshold on the amount of cash that can be used as a payment and it is much lower than what was proposed by the Black Economy Taskforce so we are laggards in this regard,” he said.
While the government’s previous move to introduce a $10,000 limit failed to progress, Greco said that imposing a criminal offence for transgressions may have detracted support for the measure.
“Making it a criminal offence made it much more difficult to get across the line but they could rethink the penalties associated with introducing a limit.”
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