Is Australia Going Cashless?

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You’ve probably heard about the budget deficit. This financial year we’re looking at $18.2 billion in the hold. And if you can believe it, this is an improvement.

What this figure shows, however, is the government’s incompetence. Even in a few decades, how could you rack up $18.2 billion in debt?

And this isn’t just a problem in Australia. All over the developed world, a budget deficit is the norm. So why can’t government’s control their spending?

As Charlie Munger would say, it all really comes down to incentives.

The incentive for you or I is to save money and invest it for the future. The incentive for politicians is to be re-elected within the next few years.

It’s why most don’t really fuss over how they frivolously spend tax payers’ money. They just funnel money into where they believe they’ll get the most votes.

Recently, a plan to save $5.3 billion is to ban cash. Not all cash, just payments of $10,000 or more. Treasurer Scott Morrison said it was a crackdown on the black economy, which is exactly what voters want to hear.

Of course, the motive is far simpler. Moving towards a cashless society will save billions that the government wastes every year.

Australia is late to the party

It will be bad news for criminal gangs, Morrison said. But really, who believes any sort of government ban will deter criminals from committing crimes.

The Australian Financial Review writes:

Cash payments of more than $10,000 will be outlawed under a widespread crackdown on the cash economy expected to raise more than $7 billion and improve the budget bottom line by $5.3 billion.

‘…An additional $318.5 million in funding will be used to expand the Tax Office’s data analytics and data-matching capabilities and to introduce a hotline for the public to report information on the cash economy and identify illegal phoenixing activity. The measure is expected to raise up to $3 billion and net more than $1.9 billion over the next four years. There is also additional money for Treasury and the Director of Public Prosecutions.

‘…The government is also introducing an economy-wide cash payment limit of $10,000, applying to payments made for goods and services from July 1, 2019 with “no quantifiable estimated [budget] impact”.

You could say Australia is a little slow to the party. In India, where corruption is a real problem, the government banned high valued notes overnight.

It would be as if Australia’s government said ‘…the $100 and $50 bill is no good anymore.’ India’s 10-month ban didn’t have the desired effect. Meaning it didn’t reduce bribery and similar acts.

Similar bans have rolled out across Europe as well.

And while it doesn’t always reduce criminal activity, it can save a whole lot of money. Consider what happens when central banks want to stimulate an economy. They reduce interest rates and pump more money into the system.

Now imagine they don’t have to produce, distribute, handle and replace a whole bunch of coins or cash.

It’s why China, the world’s largest cashless society, went off bills years ago. While you can still find paper bills in the country, the overwhelming payment preference now is cashless.

The biggest market of its kind

In 1516, Thomas More’s book Utopia laid out a world in which cash had no value. You could say it was one of the first thought experiments of a cashless society.

On an island, which More describes, there is no property ownership, no need to lock your doors, no fashion. There is no need for cash, because people simply requested goods as they needed.

It was More’s attempt to right the wrongs he saw in Europe at the time.

Yet the island also included slavery and what seemed like a dictatorship ruled by the intellectual class.

Not exactly my definition of a utopia. But it seems China has taken More’s cashless idea to heart.

South China Morning Post wrote earlier this year:

Mobile payments have made major inroads as a medium of settlement in Chinese cities. Aside from convenience stores, shopping malls, and fine dining, mobile payments are even the norm among vegetable markets and other small scale vendors.

And today, it’s one of the most popular methods of payment in China.

Last year more than US$16.8 trillion was transacted via mobile in China. Even among the poor and the super-rich, a majority like to pay via mobile, online and off.

Want to know where Australia or North America stands?

The US only makes around US$49.3 billion in mobile transactions. And for Australia figures are far lower. According to MasterCard, only about 1% of Aussies pay via smartphone in-store.

For China, that number is more than 42% and growing fast.

I believe this market could be one of your best opportunities to nab a 10-bagger in the coming months and years.

To find out how you can profit, click here.

Your friend,

Harje Ronngard,
Editor, Money Morning

About Money Morning Editorial

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the…

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