The introduction of coins and notes more than two thousand years ago fuelled the rise of trade, propelling civilisation forward. Today, that has been flipped on its head: cash is being used to hide tax obligations, as well as foster criminal activity, and society is paying the price.

Cash is the central component of the black economy, which costs the Australian economy an estimated $35 billion to $50 billion according to the head of the government’s Black Economy Taskforce, Michael Andrew.

Their work has widespread support.

“It’s in everyone’s interest – other than the black market – to remove those hidden cash transactions because, to the extent that they are taking place, it means that taxes are being withheld and the onus is being placed on everyone else,” MWE Consulting founder Mike Ebstein says.

Typical black economy activities can include businesses paying staff or accepting customer payments in cash to keep them off the books, welfare fraud, ‘dark web’ activities, money laundering, or business owners deliberately liquidating their companies to avoid paying employees and creditors (known as moonlighting and phoenixing).

The problem is multi-faceted but with Australians naturally moving towards a cashless society, payments technology could also play an increasingly important role in tackling the black economy.

An important role for technology

Relatively high tax and regulatory burdens provide a strong incentive for individuals and businesses to move into the black economy. However, cutting tax rates or streamlining regulations can be a slow-moving political process compared to the pace of technological innovation.

Ebstein says technology can lower the cost of accepting non-cash payment options – a process that is already being driven by the Reserve Bank of Australia mandating lower interchange fees.

“The aim for technology is to drive those costs even lower – that might mean cheaper merchant terminals, the ability to use your smartphone as a terminal, or more transparent scheme pricing for merchants,” he says.

Australian Retailers Association executive director Russell Zimmerman supports electronic payments. He notes that handling cash has a hidden cost for merchants while the cost of accepting electronic payments is falling.

“I'm sure you've walked into a store and seen ‘cash only’ – my immediate reaction is they are paying people under the counter so if you've got that going on, then cashless is better,” Zimmerman says.

“We need to look a little beyond the normal interchange fees and talk about bank fees generally, and if it's economical I think retailers would agree it's a good way to go.”

The Black Economy Taskforce has suggested that small businesses receive incentives if they adopt and invest in non-cash business models and also recommended that sales suppression technology (which allows businesses to understate their takings for tax purposes) is banned.

Where is all the cash?

While the use of cash as a payment method has been declining in Australia, demand for cash has still been rising, suggesting people may be using it as a store of value or for illegal activity.

Taken together, $100 and $50 bills accounted for 92 per cent of the value of bank notes in circulation as at the end of November 2016, according to RBA data cited by the government’s Black Economy Taskforce.

“One way to fix that is to put an expiry date on them,” says Ebstein. “If they're not presented at a bank by the expiry date they will become null and void. That will get rid of a lot of the black market.”

Several countries have already put limits on cash usage. France tightened its limits on cash payments to 1,000 Euros (foreign visitors can make purchases up to 10,000 Euros) in September 2015. India took a more radical move by abolishing current versions of the 500 and 1,000-rupee notes in late-2016, although the ban’s sudden implementation caused significant economic disruption.

The Black Economy Taskforce has raised the possibility of a $10,000 cash payment limit in Australia, in line with the current threshold for reporting transactions to AUSTRAC.

More radical innovation could drive change

As the move towards electronic payments gathers momentum, more innovative technologies could further accelerate the trend.

The New Payments Platform (NPP), which will allow real-time payments to be sent more easily and with richer payment information, will be launched later this year. The first consumer service, Osko, will be offered by BPAY (the publisher of Banter).

“The NPP has the potential to allow users to verify ABN details, reducing the scope for fraud (quoting of incorrect ABNs) we see today,” according to the Black Economy Taskforce’s interim report.

“Another possible future NPP use would be to allow employers to make superannuation guarantee charge payments direct to the funds, potentially obviating the need for the ATO to act as intermediary while avoiding an increase in compliance burden for small business.”

The full impact of the NPP will be felt in coming years as banks and other organisations build new innovative overlay services on top of the infrastructure.

In the meantime, technology provides tools to help the financial services sector, business and government join forces to stop the black economy becoming a bigger black hole.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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