Welcome to Finance and Fury

In today’s episode, I thought it was important to cover Currency Bill – Might have seen in the news – headlines about the $10k transaction –

  1. Currency (Restrictions on the Use of Cash) Bill 2019 – what we are talking about – had first round through Parliament
  2. Goes deeper – Talked about this topic last year in October – Cashless Society episode – link to episode
  3. Policy is trying to control behaviour – by making the undesirable activity illegal – regardless of validity or effect
    1. Gov wants all money accounted for – which is far easier when it is electronic rather than cash based –
  4. A lot to unpack in this – you might have seen this reported on in the news – give a quick recap on the bill –
    1. Then go through why these extreme measures are needed to help get out ‘black market’ economy under control – outrageously high when compared to 0% of GDP, at around 2%-3% of GDP – being satirical (later)

Quick overview of the bill –

  1. Now – people could be jailed for two years and fined $25,200 – if you make a purchase or sale for more than $10,000 in cash in one transaction.
    1. Read most of the draft legislation – called the Currency (Restrictions on the Use of Cash) Bill 2019 if you are interested in reading the full thing


Under the proposed law – all cash transactions between businesses and individuals would be limited to $10,000

  1. Any amount over this would be considered criminal – the same proposed changes announced in the 2018-19 budget we quickly ran through in an episode briefly a while back now – but now we have more details –
    1. Penalties = jail time and fines would apply to both the individual and the business part of the transaction.
    2. There are a couple of exemptions to the cash ban.
    3. The $10,000 cash limit would not apply to individual-to-individual transactions, such as the private sale of a second-hand car.
    4. The limit also wouldn’t apply when depositing or withdrawing money from a bank.
  2. The reason given for this bill is to crack down on the black market economy – The argument for doing so is based on the numbers provided by the 2017 Black Economy taskforce report, which say as much as 3% of Australia’s GDP – some $50 billion – could be getting lost to the black economy
  3. But these numbers don’t stand up to any serious scrutiny – the taskforce itself plainly says the 3% figure is just a guess – “We acknowledge that this conclusion is a qualitative one” and the figures “should be taken as indicative only” – no actual evidence on the size of Australia’s black economy – $50bn is a guess – when Look at OECD countries – no 3rd word African countries – we are well below average of just above 5% to GDP – Aus is about 2-3% – but this figure is essentially a guess – if the Gov knows about it, it isn’t black market –
  4. Where did the recommendations for this Cash Act come from?
    1. Came from the 2017 Black Economy Taskforce report – same KPMG report where the estimated size of the black market economy came from – which increased by 65% from 2012 (OECD report) to 2015 (KPMG report)
    2. this cash ban is a recommendation is part of this report – provided by one of the big four global accounting firms – KPMG – which also has conducted research to provide supporting evidence for their recommendations
      1. Interesting – company recommending the policy that will profit them, along within their industry – If this goes through, I’m sure that Mastercard and Visa, banks, etc will be very happy and might choose to choose KPMG to do more consulting or accounting work for them – I might be paranoid but that seems suspicious
    3. Irony of this report – KPMG and probably most major financial institutions (even our Big 4 banks in Aus) are the biggest perpetrators of facilitating tax evasion and money laundering – perpetrated by their clients in multinational banks, corporations – along with the billionaires who own/run each of the banks or companies
      1. There are a lot of cases in the past few years of illegal activity by banks, in most cases knowingly and just turning a blind eye – they pay the fines – say sorry – gov gets a bit more money to grow – shareholders suffer – CEO pays seem to not be affected – GFC – too much risk and straw breaking back – CEO bonus after bailouts using government funds – which can only be paid back through taxing the population
      2. Exposes the subtle expropriation the socialise loses, which privatising the profits
    4. The outcome of the recommendation is so that the individual to small business cash transfers are eliminated overtime to start implementing a cashless society – death by 1,000 cuts
  5. If this cash restriction is placed into law – it has been drafted so that the exemptions to the ban, such as for withdrawing cash from a bank, can be removed by the Minister at any time – therefore, at any point once this is in place the government can decide to ban cash transfers between individuals above $10k, or placing restrictions on the ability of Australians to access their own cash through withdrawals or transfers
    1. While our cap is at $10k based around older report – KPMG are already lobbying for the limit to be reduced to $2,000 – putting new legislation into law can be a lot harder than minor amendments to one detail within the other 200 pages.
    2. We seem to have another situation a policy being entered into parliament by either pay is essentially a template forwarded to them by one of the companies that the legislation is meant to regulate
    3. If you are Microsoft – Massive company, diverse revenue streams, brand, etc. – plus profits after R&D – hard for some tech companies to achieve – it actually helps you long term to have AI employment taxed like Bill Gates said that he might be for. They can afford it, they would have fired people in the process anyway, so wages might not go down by much – put if productivity goes up and no other companies who are competitors can afford the AI employees to compete – keep moving in the same direction we have been for over 100 years – the consolidation in size and market share of a few companies.
    4. There does need to be a speed limit to this though – Gov in the US did a decent job of this via the Sherman Anti Trust act – monopoly busting of the ‘oligarchs’ like Standard Oil. But they only reason this legislation worked is that it was enforced – it is still law – so why does Google have a much higher market share and monopoly powers than almost any company since the Dutch East India Trading company
      1. Can’t pronounce in Dutch – VOC for short – in today’s terms – just under $8trn value – to this day no other company has been as big or powerful – owned nations and armies – 70k employees
      2. Not to mention the 10s of thousands of slaves – perspective – Apple, Alphabet (Google), Microsoft, Amazon, FB, Exon Mob, Bank of America, plus the next 12 behemoth companies come to about $8trn in valuations
    5. How can one company get so big? Form of Mercantilism that was used a lot under colonial days – Companies are given barriers of protection or monopoly contracts of trade or sale, exemption from tax, etc.
      1. Honestly – looking at it – Globalisation is similar however now we have the internet and don’t have sail ships and cannons – multinational company which help to provide direction to the politician in return for either donation, future job, whatever nepotistic arrangement can be thought of
  6. The real outcome of this will be to punish those who are doing the right thing and not involved with the black market, and then those that are will just start billing at $9,999 a pop – Criminals are called criminals for a reason – they aren’t doing what the laws say already – so what is capping the transaction limits on businesses going to do in the grand scheme of things when the black market will change one small thing, might cost 30% margins to launder money but still around same rates as companies are meant to pay
    1. Human behaviours change to adapt to the environment – Centrelink with Gifting – If you gift $10,001 p.a. for 3 years it will be counted towards assets still – but do $9,999 for 3, technically below the thresholds – a difference of $2 p.a. If it goes down to $2 transactions, start investing in a lot of Dollar Stores to laundry the illegal cash – criminals by nature adapt to get around the laws – while the vast majority of the population is law-abiding – don’t want to be a criminal so will follow new laws – regardless of how absurd
    2. Every new law creates a new class of criminal
  7. Not only will this have very little effect on the black market – the justifications don’t stack up to this level of measure – the Black market economy –
    1. Funny thing is – looking back in history – every time there is a black market in anything, some people are making money out of it – the more money the better the economy – but only if it is locally spent – Miami during the 80s with the Cocaine boom – mass inflow of untaxed cash – more than dealers could spend – as they spent at legitimate businesses – cars, clothes, houses, etc. – Mini economic boom due to local illegal cash velocity – modern – global transfers to lower tax environment – so illegal activities domestically lead to money disappearing, not being laundered and spent back into the economy –
    2. Don’t take this as an endorsement of illegal tax evasion, money laundering, etc. – but how different is it to spending $25m on lawyers, structures and offshore conduits or sink letter box offices in other countries to do it ‘within the regulations’ – versus money laundering at a cost of $25m in handling fees – no tax either way for Gov – who this bill is for
  8. How is this going to help? Thankfully the reports from Gov have calculated the potential benefits of the bill
    1. The “closest thing” to calculable benefits is a speech where it was said that implementing the recommendations of the black economy taskforce “could bring in $5.3 billion over the next four years” he points out.
    2. take the yearly average – equates to about $1.325 billion per year in additional taxes on GST, stamp duty, etc. Mostly Government transaction costs avoided
    3. Australians use credit cards to purchase $1bn of G&S every single day – approx. $365bn p.a.
    4. Something that probably isn’t taking into consideration is that for each dollar transacted via credit card – there are merchant fees charged by the financial institutions = 0.87 cents for every dollar on average – as a rough estimate – we are paying just under $9m per day in credit card transaction fees = $3.5bn p.a.
  9. This bill does a similar thing to most regulation post 1960 – granting monopoly protection through additional barriers – for banks this is their revenue stream through fees on transaction options being limited and they happen to provide the remaining legal options – economic term for this is ‘rent seeking’ or extracting from the economy for no positive output.
  10. I remember once upon a time when all credit card charges were added on top of the purchase amount – go into a store and cash or card are the same (except AMEX) – Businesses made the decision to price everything at the CC level to avoid the arguments with customers over why they have to pay extra –
  11. More regulation = unintentionally cementing a bank monopoly on transactions and economy gets very lopsided = all for the sake of a $1.3 billion annual increase in the Government’s tax take? Or even to try and swat at a non-existent black economy problem?
    1. Just another layer on the price control policies for the economy – setting caps or floors
    2. But the gains for Banks in fees, that the billions in CC fees each year isn’t even scratching the surface on the total volume of financial leverage behind the scene –
      1. Modern economy has innovated to continually scale up the value that flows through the financial system – Foreign remittances, derivatives, securities, loans, structured financial products –these are just the tip of an iceberg.
    1. I know that most people may be thinking to buy BTC now – blockchain has great potential in emerging as a competitive threat to financial institutions – I think the Gov also thought of that:
    2. This policy is in an effort to crack down on the “black economy” -may be extended to cryptocurrency
      1. First version of the bill specifically excluded cryptocurrencies from this limit, but now shadow assistant treasurer Stephen Jones has said the law should be extended to cryptocurrencies – “If the motivation is genuinely looking at addressing fraud, tax avoidance, terrorism, and criminal activities then we should look at all of the currencies that are likely to be subject of that,”
        1. said there is bipartisan support for this – in politics – bipartisan support is a scary word – means they all mostly support, regardless of party – Have the power to regulate crypto as well – AUSTRAC– regulation terrorism and money laundering/tax avoidance
  12. Banning cash transactions over $10,000 will not end the tax evasion and money laundering of the “black economy”
      1. The known outcome is removing the right to privacy in financial affairs through reporting regulations, reducing you available of cash transfers along with future limits on withdrawals, creating a situation limiting any escape to policies such as “bail-in” and negative interest rates
  13. This is a big topic – and Two big things I haven’t really seen mentioned – but come into play
    1. Next Monday – go into how the Bail-in laws fit in, along with negative interest rates –
      1. This policy controls behaviour of forcing larger amounts of cash to be transferred/stored by banks
      2. If you cant withdraw cash – then it is sitting there either getting taken to bail out a companies debt or now the bank is charging you to deposit money (not to mention inflation)
    2. Also, run through options to preserve capital – look at other forms of money – historical money – due to this legislation having the capacity to be a sign of identity regulation on Crypto markets, won’t be BTC or others sorry.
    3. Also, talk on how to fix the real black market economy going on by not some clandestine secret society, but the brands that you see or use every day – might take 2 or 4 eps to do

Thanks for listening to today’s episode.

If you want to get in touch you can visit financeandfury.com.au or go to the contact page here. 



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