A Senate inquiry into the Federal Government's bill to ban cash payments of $10,000 and impose two-year jail sentences for people using cash for purchases above that limit has heard from thousands of stakeholders including businesses that warn the change may actually increase black economy activity rather than fight it.

Key points: The Federal Government is facing major pressure over its proposed bill to ban cash payments of $10,000

The Federal Government is facing major pressure over its proposed bill to ban cash payments of $10,000 The bulk of thousands of submissions to a Senate inquiry oppose the proposed law, arguing it is unworkable and impinges on civil liberties

The bulk of thousands of submissions to a Senate inquiry oppose the proposed law, arguing it is unworkable and impinges on civil liberties The Liberal Party is also facing disunity within its own ranks because of the proposed law

The majority of submissions oppose the proposed cash ban, arguing the start date for the proposed laws is unworkable, is an infringement of people's civil liberties and could exacerbate the impact of negative interest rates on ordinary citizens.

Some also argue there is no firm evidence that stopping payments of cash for purchases above $10,000 will decrease black economy and warn that it could create a new criminal underworld where loopholes in the proposed law are exploited.

There is also immense objection to severe penalties under the proposed law, including fines up to $25,200 and two-years imprisonment, which would apply to both the business and the individuals involved in the transaction.

Some submissions point out that elderly people and migrants that have saved funds in cash over the years for major purchases or events would be harshly impacted.

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The Liberal Party itself is also facing disunity over the proposed law, which is taking place ahead of several ministers retaining preselection in Victoria, including Treasurer Josh Frydenberg.

The party's Victorian branch on November 23 endorsed a motion calling for the law be abandoned.

Steve Holland, the party member who moved the motion, told ABC News many people were concerned about the bill and the motion was "overwhelmingly" supported.

"Members that voted in favour of my motion are the same members that are voting at preselections," he said.

"The main thing is that it [the proposed law] is antithetical to Liberal party values and a lot of people were saying [at the meeting] that it should never have been proposed by the Liberal party in the first place," Mr Holland added.

"People should have the right to use cash if they choose to do so and shouldn't be deemed a criminal for using cash."

He said another concern raised was that if cash is restricted, ordinary people will be locked into using the banks to transact, which can attract high fees, and may lock people into negative interest rates.

He said given Reserve Bank Governor Philip Lowe this week warned that quantitative easing could take place in the future if circumstances warrant it, people were concerned about the potential for currency manipulation.

But Assistant Treasurer Michael Sukkar told ABC News the bill has been designed to "reduce the ease with which black economy transactions can be made, combat the money laundering activities of organised crime gangs and stop unscrupulous businesses gaining an unfair competitive advantage over honest Australians".

"The Government awaits the finalisation of the [Senate] Committee's work and will consider its findings," he said.



People buying a house with cash will be impacted

The majority of submissions to the Senate inquiry into the Currency (Restrictions on the Use of Cash) Bill 2019, which passed the House of Representatives in late October but with significant concerns raised by several politicians, also raise similar issues.

The Senate inquiry is due to report back in early February on whether the banning of cash payments bill should go ahead, which would mean the January 1 start date for the proposed laws will be missed.

According to Treasury's submission, the cash payment limit applies to a single payment of cash of $10,000 or more, or a series of payments made for the one supply or as a single gift that includes $10,000 or more of cash.

The limit does not apply private transactions such as the sale of a car between two individuals not running a business and the private transfer of funds to family members or inheritances.

However, the cash payment limit does apply to sale of real property between individuals.

"The cash payment limit will make it more difficult for individuals who buy houses with cash and seek to obscure the ultimate source of their funds," Treasury said.

Digital currency would also be excluded, it said, since it "does not yet have an established industry structure, making it difficult to apply the cash payment limit in a way that would not stifle innovation and growth of the sector".

Treasury noted a "common misconception is that the minimum penalty for recklessly breaching the cash payment limit is imprisonment", but that this would be up to the courts to determine in each case.

Harsh impact on small businesses, regional farms

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the start date should be moved to January 2021.

She did not support the strict liability offence and said small businesses must not be disadvantaged when a customer chooses to pay with cash and the record-keeping is compliant.

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She also noted that regional and remote small businesses and pastoral family enterprises in rural Australia do not have reliable access to the internet and electronic banking facilities and often not even easy access to a landline and mobile telephone services.

She also said the Government "owes a duty to the population to ensure a comprehensive media campaign is undertaken before implementation".

The NSW Farmers Federation expressed similar concerns saying the proposed law encroaches on civil and economic liberties and that "it is unclear what evidence exists to illustrate that limiting cash transactions to $10,000 will prevent tax avoidance and illegal activities".

"Should this bill progress in its current form, Government will increase its direct authority over personal cash management or investment decisions, essentially requiring all cash to be held in registered financial institutions," it said.

"The association strongly opposes this unwarranted and indeterminate level of oversight on the personal decisions of individuals to make expenditure decisions fusing their own capital."

It added that such an infringement would be exacerbated if in Australia the nation hits a situation of negative interest rates and depositors have to pay the financial institution to hold their money.

Calls for a public awareness campaign if law isn't abandoned

Flight Centre said in its submission that aside from being unable to implement major changes to its systems to comply with the January 1 start date, the Morrison Government had opted to not run a public awareness campaign about this major change.

"The Government should not be relying on businesses to act as gatekeepers, as an effective way to contain costs, educate the consumer and contribute to policy change, whilst being exposed to significant criminal sanctions for breaches," Flight Centre said.

Its submission added that there should be a corporate defence against hefty penalties and that a single regulator should oversee compliance and enforcement of the legislation if it proceeds.

Opal Association Incorporated said the proposed law was "badly thought out" and may harm small businesses and miners.

It said many opal mines exist in remote areas with no banks and that cash is the preferred option.

It also pointed out that it was unclear what below $10,000 was when taking into account factors such as GST.

"We have members who pay cash, get an ABN number and add GST," it said.

"If they purchase a parcel at $9,500 and add $950 GST, are they doing a criminal activity?"

"If someone does a legal transaction of $9900 cash and accidentally overpays $100, is that considered criminal activity?"

Online marketplace business Gumtree said the bill could have a "detrimental effect on both businesses and consumers".

It noted penalties under the bill were significant, that most consumers did not understand it, and that if it was to go ahead, the Government would have to embark on a consumer awareness campaign.

Australian Funeral Directors Association called for an exemption for their industry noting that many elderly Australians and migrant communities may have avoided the banks when putting money aside to save for a significant event like a death.

The Housing Industry Association also opposed the bill, and said if it was to proceed, the residential building industry should be excluded and the Government should launch a formal public awareness campaign.

It noted payments made during a residential building project are taken in stages based on the completion of certain works, and hoped these would fall outside the scope of the proposed offence.

Business lobbies warn laws will increase black economy crime

Other business groups that had previously made submissions opposing the cash ban to previous Treasury consultation on it, have again repeated their concerns to the Senate inquiry.

CPA Australia's submission said there was "a lack of a strong evidence-based case" to justify criminal penalties and called for the bill to be withdrawn.

The Australian Chamber of Commerce and Industry (ACCI) also said "there is insufficient justification for the bill" and called for it to be abandoned.

"The prohibition of cash payments may lead to more sophisticated black market activity that may become harder to monitor and trace," ACCI said.

It said it was also unfair that the bill targets cash when it is likely to exempt new ways of payment such as cryptocurrency.

There also may be appetite from governments to lower the cash payment threshold in the future, ACCI said.

"Policies that act to penalise the use of cash undermine its legitimacy as legal tender and this is problematic to the stability of the financial system," it said.

"There are already concerns expressed that in today's low, even negative, interest rate environment that it is a poor time for downgrading the value of cash in the economy."