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Controversial cash payment ban bill could see you paying the banks to hold your deposits

While Aussies have been busy buying up big on toilet paper, the Federal Government has been working on a new piece of legislation that may have a very substantial effect on investors if enacted. After being endorsed by the Labor government in the House of Representatives last year, the Senate Economics Legislation Committee recommended the bill be passed last week. 

The Currency (Restriction of Use of Cash) Bill 2019 has been introduced on the premise that Australia has to crack down on the ‘black economy’ by making it illegal to use cash for transactions over $10,000. 

The legislation proposes a $25,000 fine and two years jail for those who breach the new rules.  The legislation will allow the government to change the quantum at their discretion (meaning that over time, the $10,000 limit could be reduced to any number in the future). 

What are the implications of this?

The net effect of the legislation is that it will move Australia towards a cashless society. 

The biggest winners of this legislation would be the Big Banks who would be able to charge depositors to hold their money in the bank in the event that negative interest rates become a part of the economic toolbox of our regulators.  This could amount to a trillion-dollar boost for banks who have been licking their wounds on the back of the Royal Commission. 

The International Monetary Fund has already noted that negative interest rates may be required in the near future for global economic stimulus.

Cash transactions have been falling in Australia in recent years, in any case, so this legislation appears to be more of a tool for monetary policy to stimulate the economy going forward. Negative interest rates would only work if Aussies were forced to use the bank to hold cash. The policy aim appears to be to motivate people to spend their money, as opposed to save their cash. 

There are five Central Banks already with negative interest rates – the eurozone, Japan, Denmark, Switzerland, and Hungary. Although the Reserve Bank of Australia (RBA) governor Philip Lowe has said that it’s unlikely that Australia will need to stimulate the economy with negative interest rates, this legislation does pave the way for the RBA to entertain unconventional policies. 

How did the bill originate?

This controversial legislation was originally proposed by KPMG, which suggested that small businesses in Australia are avoiding $7 billion in taxes. According to KPMG, it’s tradies, hairdressers, nannies, gardeners and personal trainers who are evading their obligations who are the cause for this legislation. 

However, a public hearing in Sydney on 30 January 2020 determined that the biggest tax evasion in Australia has nothing to do with cash payments whatsoever. 

South Australian Senator Rex Patrick presented to the legislators 204 companies across Australia who over the last 5 years have generated more than $800 billion of revenue and not paid a cent in tax in that timeframe. The Senator mentioned a range of companies that have paid no corporate taxes over the past five years in spite of their vast revenue, including; Amcor Plc (ASX: AMC) $16 billion, Exon Mobile $42 billion, Ford $14 billion, and Vodaphone Hutchinson Telecommunications (Aus) Ltd (ASX: HTA) $18 billion.

The Senator went on to say that most Australians would find this situation unacceptable and he requested that the Tax Office to review the large end of town to assess whether the correct tax has been collected.   

At least 2,640 submissions against the legislation have been submitted to the government to date, however, the regulators have so far been unmoved by the concerns raised by every-day Australians. 

New Zealand has recently rejected cash-ban laws on the back of average Kiwis rejecting the loss of access to cash transactions with the associated loss of privacy and autonomy that this may involve. 

Foolish takeaway

The “Cash-Ban” legislation currently before the Australian Parliament is being proposed as a solution to the Black-Economy but in fact, appears to be a monetary tool for the government to boost the economy. The big winners will be the Big Banks and the big losers will be savers and those on fixed interest incomes.    

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Motley Fool contributor Margie Baldock has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.