The ATO must stop fanning the cash economy

The ATO must stop fanning the cash economy

The Easter weekend has become a celebration of the cash economy. 

It is one of the more concentrated leisure activity periods on the calendar and attracts vast amounts of shift allowances and penalty rates.

Small cafes, restaurants, hotels and other accommodation businesses around the country simply can’t afford these penalty rates and so have reached agreements with trusted staff which usually involve higher pay rates for non-penalty rate times and an extension of that rate into high shift allowance periods, thus avoiding peak penalty rates and shift allowances. Locking everyone in is the promise of cash payment.

The alternative to these systems is to not to open the premises, which hurts the pockets of the staff, many of whom are juggling the complexity of two incomes, children and mortgages.

Young people seeking employment in these industries need to understand how the system works.

One of the biggest drivers of the cash economy and the encouragement of young people to join the cash system is none other than the taxation office. They have made it difficult for young people to get Australian Business Numbers and have deliberately misinterpreted the Howard rules on independent contracting.

The commissioner is gradually coming to understand how his department’s actions really fanned the cash economy by forcing people to operate outside the system. But it has been a slow process and this vital issue was ignored in the tax system review. It should have been a key feature.

The tax office actions have cost the community large sums and changed the culture of young people who now enjoy the delights of the cash economy and regard it as part of the world they were forced to live in by the very people who are supposed to be collecting taxes.

Periodically, tax people launch raids on the cash economy but in today's computer bookkeeping world, it is not hard to make the books 'legal' and with so many tens of thousands involved, the costs of tax collection exceed the revenue raised.

The Coalition Government must take part of the blame because in opposition they understood what the tax people were doing and vowed to stop it and change the culture. In government they were snowed. They are still trying but the fire is gone from the belly.

The entrenched cash economy is now taking an important twist -- it’s affecting the value of businesses. It is always hard to sell a business that trades with substantial cash content because the real figures do not appear on the books. But those operating in this field know how to make adjustments to the books. The big money is now being made by buying businesses that do not know how to use the cash economy and converting them.

During the week I was in the company of a small hotel owner who pays the full entitlements under the law. That publican has attracted people on the staff who are entitlement focused -- they are not flexible workers. The business is dying.

Rival establishments who work in the cash economy know they have to recruit people whom they can trust and who are flexible workers. The hotel I am talking about will be sold and all the staff quietly removed. They will be replaced with flexible staff operating in part via the cash economy.

The greatest threat to the cash economy is the increased use of credit cards with the new technology.

When politicians pass rules that do not make sense, like excessively high holiday penalty rates, then the community finds a way around them. The most famous of these was liquor prohibition in the US.

But you will find similar cash dominance in European countries like Greece, Spain and Italy. We are not that far along the track but we are going the same way.

Given that penalty rates are politically out of bounds, the only way to curb the cash economy (you will never stop it) and bring young people back into the full tax system is to encourage people to register for ABNs and to contract their services out where it can be legally undertaken under the act.

The revenue raising would be substantial, particularly at Easter.