There’s an estimated $25 billion worth of business that’s being done off the books – and a cashless society could be a way to solve the ‘black economy’ conundrum.
One of the key measures of the Government’s recent Budget was to crack down on cash payments that went untaxed – or entirely outside the tax system.
It’s taking a look at everything from tradies doing cash jobs, to phoenix companies, to employers underpaying staff off the books.
The government has taken some action in the Budget, while a Treasury taskforce is looking for solutions to the problem.
So, what’s the big deal?
Not just a black hole for revenue
This isn’t just a cash grab for the Government.
While tax on $25 billion of payments could go towards roads, schools and hospitals, the effects of black economy activity are wide-ranging.
One of the observations made in the initial Treasury report on the issue was that because the Government missed out on that revenue, regular taxpayers had to pick up the slack.
“It also means honest people pay more taxes than they should have to because of those who don’t pay their share. It’s a dangerous dynamic,” taskforce chairman Michael Andrew said after the initial report’s release.
“It’s not fair that those doing the right thing end up having to pay for those who cheat the system.
“If left unchecked, black economy activities create a culture which legitimises and encourages further participation, so action needs to be taken now.”
It also opens the door to employers underpaying their staff by keeping the payments ‘off the books’.
Troublingly, it also creates an uneven playing field for companies that compete for work against those who don’t pay their fair share. Firms that don’t pay the right amount of tax could undercut fair bidders by being cheaper.
The black economy problem touches many aspects of the financial system of trust and counter-balance we all take for granted.
While the problem is complex and varied, there is one common denominator: cash.
Could a cashless society solve the problem?
In handing down the initial report, the taskforce posed a provocative challenge:
“The Taskforce also intends to examine whether there is any reason for businesses to operate on a cash only basis given the availability and increasingly low cost of non-cash payment methods today,” it said.
“While cash will remain legal tender and play an important economic role, it is not clear why some firms refuse to accept non-cash alternatives.”
That’s a fair point.
Australia is awash in technological solutions that let people pay businesses electronically.
According to the Reserve Bank of Australia, people prefer to pay electronically too.
Its research team found that in 2007 cash payments made up 69 percent of payments while just 26 percent were from credit/debit cards.
In 2016 that ratio had flipped to 37 percent and 52 percent respectively.
Innovations such as the New Payments Platform (NPP) mean that transactions are getting quicker, safer, and more efficient.
This isn’t something in the far future, by the way. The NPP is set to become live later this year.
Even without government intervention, along with much of the world Australia is moving to an economic system based on electronic payments.
While that brings its own unique risks, the efficiencies and accountability offered are too good to pass up.
That’s certainly been the case in other countries around the world.
Sweden: ABBA, saunas and cashless payments
According to a Euromonitor report cited by the New York Times, only 20 percent of consumer transactions in Sweden in 2015 were made with cash.
That’s in comparison to an average of 75 percent in the rest of the world.
Sweden is often held up as an example of one country that’s running headlong into a cashless society.
As a result of the push, the government has been able to increase its tax take because payments leave a trail.
While the amount of cyber-crime in Sweden has increased as a result of more electronic transactions.
For example, the NYT cites Sweden Ministry of Justice Statistics indicating the number of electronic fraud cases in 2014 was more than double that a decade prior.
The prospect of purely electronic currency also leads to concerns about ‘Big Brother’ activity – there’s very little sign of Sweden slowing down its push.
Regardless of the downside, people are on board.
Why? Because it’s so convenient.
Their desire to speed up the payment process has led to the development of technology which helps do just that.
Sweden offers Australia and other countries a glimpse of the future – whether you’re ready or not.
MYOB often beats the cashless payment drum – and it’s for a reason.
Plenty of research, including the MYOB Radar Report, has comprehensively concluded that Australia is heading towards a future where electronic payments rule the roost.
Those who prepare for the future today are better placed for success tomorrow.