A Senate inquiry has backed a controversial bill to ban cash payments of $10,000 and impose two-year jail sentences on people using cash for purchases above that limit, meaning it will soon become law.

Key points: A controversial bill to limit cash transactions to $10,000 has received support from a Senate inquiry

A controversial bill to limit cash transactions to $10,000 has received support from a Senate inquiry A dissenting report from the Greens raised concerns that the bill would restrict people's civil liberties

A dissenting report from the Greens raised concerns that the bill would restrict people's civil liberties With the support of Labor, the bill is expected to pass Parliament soon

The Currency (Restrictions on the Use of Cash) Bill 2019 passed the House of Representatives last year, but was referred to a Senate inquiry for further debate.

The Senate committee recommended that the bill be passed contingent upon several changes, including that the start date is extended to give businesses sufficient time to comply, and that the Federal Government review the penalty provisions to ensure they are not "overly harsh".

The law was due to take hold on January 1, but Treasurer Josh Frydenberg has given the Senate committee an undertaking that the law will not be applied retrospectively.

The bill has caused a stir among the Liberal Party, with some members arguing it is antithetical to the party's values.

The inquiry received 2,659 submissions by early December, with the majority of submissions opposing the bill, and many arguing the Government should not interfere with their legal right to spend cash how they wish.

Many submissions also raised concerns that the proposed law may leave people's bank deposits vulnerable to negative interest rates — a situation whereby, instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank.

But the Federal Government has consistently argued the measure is intended to fight the black economy, by stamping out tax evasion, money laundering and other crimes.

The committee said while it recognised that the majority of submissions to the committee opposed the bill, many of them were "based on hypothetical scenarios" such as a situation where Australia may hit negative interest rates.

It also rejected submissions that had objected on the expectation that a government would eventually reduce the cash payment limit below the proposed legislated amount of $10,000.

"The committee rejects the conspiracy inherent in some of the contributions on the bill," it said.

"The cash payment limit does not, in any way, reduce the capacity of individuals and businesses to withdraw money, in any denomination, from their bank accounts and hold it outside the financial system. Likewise, the bill does not affect the ability to deposit cash with a financial institution."

The committee also dismissed concerns raised about the bill's impact on privacy and civil liberties, noting, "this must be balanced against the concerns raised by other stakeholders who described the negative impacts of criminal activity and tax evasion".

Federal Treasurer Josh Frydenberg has promised the law to limit cash transactions to under $10,000 will not be applied retrospectively. ( ABC News: Andrew O'Connor )

'Cure is worse than the disease': Greens

A dissenting report from Greens senator Peter Whish-Wilson said "the bill is a classic case of the cure being worse than the disease".

He said a fundamental characteristic of most market economies was the ability to use hard currency to buy and sell goods and services.

"By criminalising the use of legal tender … this government is blithe to the fundamental freedoms provided by hard currency, and is instead laying down a path towards surveillance capitalism and negative interest rates," Senator Whish-Wilson said.

He added that if the Federal Government was really serious about fighting tax avoidance, it would introduce a register of beneficial ownership that would out the people behind secret shell companies, and make public the behind-closed-door settlements between the ATO and multinationals about how much tax they pay.

And if it really wanted to fight money laundering, he said the Government would end the current exemption for real estate agents, accountants and lawyers having to report under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

"Australia is now one of only six countries in the world not to have closed this loophole, alongside the United States, China, Mongolia, Madagascar and Mauritius," he said.

Greens senator Peter Whish-Wilson opposed the bill in a dissenting report. ( ABC News: Adam Kennedy )

Call for public campaign to 'dispel myths'

The proposed law would apply to all payments made to businesses with an ABN for goods or services, affecting major purchases like cars and building renovations.

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The Government has said the measure would not apply to individual-to-individual transactions, such as private sales where the seller does not have an ABN, or cash payments to financial institutions.

The committee recommended the Government develop a public communications strategy to "assist in dispelling some of the unsubstantiated claims regarding the bill".

It also suggested the Government review its existing powers and trends in the digital economy to assess whether the bill is the most effective response to the black economy.

The inquiry also noted concerns raised by the Australian Small Business and Family Enterprise Ombudsman, and others, regarding the availability of electronic banking services in remote and regional Australia and the impact on migrant communities.

The Australian Funeral Directors Association had 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 inquiry said these concerns should be addressed before the law passes.

The bill had also attracted some political opposition, with minor parties such as One Nation, and independents such as Andrew Wilkie, expressing concern that it restricts freedom and pushes Australians into the clutches of the banks.

There has also been some disunity within the Liberal Party itself, with Victorian branch member Steve Holland, moving a motion in November to have the bill dropped.

Some had personally lobbied Victorian-based federal members Josh Frydenberg and Assistant Treasurer Michael Sukkar to drop the bill.

Law has no quantifiable impact on revenue

The bill's explanatory memorandum does not say how much extra expenditure is needed to enforce the law.

It states the cash payment limit is estimated to have an "unquantifiable impact on revenue over the forward estimates".

Concerns were also raised that because of inflation, the $10,000 threshold would encroach on Australians, dropping over time, so that within 10 years it would be about $2,000 lower.

The committee noted a potential solution would be to have the Government undertake a review in three years.

The head of Treasury's black economy division, Patrick Boneham, told a hearing held during the Senate inquiry that the proposed cash limit was a Black Economy Taskforce recommendation, and the taskforce's view was formed based on anecdotal evidence.

Business lobbies including CPA Australia and the Australian Chamber of Commerce and Industry (ACCI) had argued that there was no legitimate evidence that the proposed law would stop black economy activity.

And the Law Council of Australia's Andrew Ham told the Senate hearing the proposed law could result in "unintended consequences" whereby ordinary Australians get caught out by the law.

The bill does not currently capture digital currencies such as Bitcoin, which has been criticised as another shortfall, and sparking fears it could lead to more sophisticated black economy activity.