February 2, 2022

The Institute of Public Accountants (IPA) is urging the Government to revisit the Black Economy Taskforce recommendation to impose a cash limit on business transactions over AUD10,000 as the amount of cash circulating in the economy surges to a record $102.7 billion.

“Some of this is people hoarding cash in uncertain times. A significant portion, however, is flowing into the black economy which continues to grow. It’s being used for cash jobs, such as building renovations and house repairs, which winds up as undeclared income,” IPA senior tax advisor, Tony Greco says.

Despite a surge in digital payments, demand for banknotes remained extraordinarily high in 2021. IPA estimates there is currently around $4,000 worth of notes on issue for every person in Australia, including children.

“We need to make it harder for people to dodge their tax obligations, to launder money, and double dip as undeclared income can increase participants entitlements under our social welfare system,” Mr Greco says.

Australian Tax Office tax gap figures – which track the amount of tax which should be paid versus actual receipts – shows the combined tax gap for individuals and small business rose to $20.9 billion in the 12 months to June 30, 2019. A significant proportion of the tax gap for these two groups is related to undeclared income.

In 2017, the Black Economy Taskforce estimated the potential size of the black economy to be $50 billion, or 3 per cent of gross domestic product. Indicators suggest it is booming.

Mr Greco says COVID business support packages may have encouraged more participants to game the system. However, it won’t show up immediately due to the lag in ATO statistics.

The IPA’s recommendation to impose a cash limit on business transactions forms part of a suite of measures to preserve the integrity and fairness of the tax system. It only impacts consumer-to-business and business-to-business transactions.

“Cash limits on business transactions are already in place in other countries, several of which have set the bar much lower ($1,000). We’ve got to make it harder for the black economy to operate in order to preserve the integrity and fairness of our tax system. If you don’t, people doing the right thing will end up paying more and some will be encouraged to look for ways to join the club. The current tax gaps are too big to ignore, we need to start chipping away at the problem,” Mr Greco says.