The Laws of Unintended Consequences

[Jerry_Atrick]

Jim Chalmers must be feeling its effects today. The "abolition" of credit card surcharges to make the coffee cheaper according to Albo resulted in the ATO scrapping taking credit card payments for tax. I am not sure, but I thought the treasurer would have been consulted before the ATO decided to scrap the ability to pay with a credit card, especially if so many small businesses rely on it - which is in itself a worrying sign. 

 

I am trying to work out if this is really unintended consequences or just incompetence. 

 

Here is my conspiracy theory. When a consumer is presented a bill at the counter, and they will be slugged a fee for using the credit card, unless they are broke or tempo short of cash on their debit card (assuming they are not going to cop a bigger charge on their debit card use), then they are likely not to use that credit card. That causes a bit of a headache to the credit card companies as that is less lending they are dolling out and less transaction surcharges they are making. So, maybe lobbying the government (and i have no evidence of this), they managed to persuade the government that not allowing credit card surcharges was in the consumer interest. Or maybe consumer groups took the kool-aid and suggested the same to the government - with good intentions. 

 

What people forget is that, especially for small businesses - these charges can be 3% + a minimum transaction fee. For small items like a coffee, that can be a bit of change per transaction for the flat fee. 

 

But, if a business can't charge a surcharge, they are left with two options: 1. absorb it because all small business owners are greedy bar stewards and want to fleece the public, right?  Or two, just pass it on in increased prices - to everyone. But, that way, if you're tempted to use your credit card and avail yourself of the, is it 55 days interest free period, you will do it. The credit card companies still get some money and you're none the wiser. 

 

So, Albo spruiking the coffee being cheaper is not quite true and there were stories of before and after prices of the surcharge ban coming in was a biot of an own goal depending on where you purchased your coffee (and other things). 

 

Now, the ATO issue. I get that little issue of credit card surcharges on the tax payment may have slipped Chalmer's mind. I mean I am not sure he has had the experience of running a small business and the cash flow issues that come with that. I am not even sure he would have bothered to consult the ATO on the move because the ATO is about tax, and not credit card payments. But, surely, the ATO would have consulted Chalmers before making a unilateral decision to withdraw accepting credit cards if so many small businesses make their payments with credit cards. After all, the ATO just can't raise its prices.  In which case, maybe Chalmers forgot to ask how many make the payments and how much is paid using credit cards. I would guess that the ATO would have presented it as, "Gee, boss. If we can't make credit card payment surcharges and unilaterally increase the corporate tax rate, GST, or whatever taxes are paid this way, then we will lose $xbn to the credit card companies."  And everyone got fixated on the cost and not the impact. 

 

So rather than ask why that would be the case and what would be the impact of going ahead or not introducing a carve out for ATO payments (apart from that being political suicide), the ATO just went ahead - after all - they are a bit of a law unto themselves. 

 

Well, it has come to bite the government on the bum. In the scheme of things, not in a huge way, and it will all blow over - The problem is that the decision to allow credit card payments to be taken by the ATO will only be for a year.  What then? 

 

But, this is an example in poor thinking. The idea that the surcharge would be a boon for consumers is a joke. Ye, only 17& of cafes in this case have unilaterally increased their prices - you can bet others will follow suit. Also, you don't, as a consumer get to take advantage of a lower price by not using cheaper forms of payment. How is that a boon for consumers? Yes, you coul argue it punishes those who are skint at the time.. Er.. if you;re skint, shouldn't you be paring back a bit anyway - using a credit card will just make you skinter. 

 

And you have just cut off an important cash flow management capability for small businesses. Well done. 

 

I used to have a small software reseller in Aus.. I can't recall if it was Westpac or Anz that provided the merchant facilities to take credit cards, but I recall in the contract, I couldn't apply surcharges (well it was worded I couldn't offer discounts to those not using a credit card that wasn't available to those who used credit cards, if I recall correctly). The transaction costs sometimes made a sale unprofitable when competing with the big fellas. I managed to eek out a living from it, but jeepers it was tough. And that was offering support to try and bring in some margin against the big fellas. Almost every consumer is cost conscious - one learns that very quickly despite what the text books say.

 

I put these sorts of government decisions more to incompetence than to unintended consequences - but the latter is usually the result of the former. 

[facthunter]

You expect him to Mind -read do you?. I don't think the ATO have a big regular to and fro. with gov't. They are generally Independent in how they run their show.  They assess and collect what is Legislated by Gov't The way "SOME" Business's want to do it Passes the cost onto Other taxpayers.  Credit Cards are Contentious items The TAX office doesn't need the surety of Payment that Helps business feel good. But Be assured, The TAX office will GET their Money. Jim Chalmers is a "Doctor"of something so He's not your ordinary Dill as you Might Infer . We are STILL AAA rated and doing a lot better than most similar Countries. Check it up IF you don't believe me.  A business not being able to Pass on a gov't cost is BS. We pass on GST in full. . If you don't use a card you should get a price above those who do.  You should not have to pay for something you didn't use. That should be a basic principle. Nev

Edited 12 hours ago by facthunter

[old man emu]

1 hour ago, Jerry_Atrick said:

Albo spruiking the coffee being cheaper is not quite true and there were stories of before and after prices of the surcharge ban coming in was a biot of an own goal depending on where you purchased your coffee (and other things). 

 

Sounds a bit of a re-run of Hewson and the birthday cake.

[willedoo]

1 hour ago, Jerry_Atrick said:

I put these sorts of government decisions more to incompetence than to unintended consequences - but the latter is usually the result of the former. 

Jerry, it could be due to decisions being made in a more rushed manner than they normally would. The government is under political pressure and taking into account their so far very cautious nature, they have a need at the moment to be seen to be doing something. Regardless of whether that's distractions, announcables, policy making on the run or good policy, there's space they need to fill as time to the election is whittling down.

 

Another backdown today was their only very recently announced 25% cut to state disaster funding. That idea only lasted days after a huge backlash from councils in my state, which has the highest disaster cost in the nation. It would have been a nightmare for councils trying to fund that extra amount and also a lot of pressure on the state budget. It's rare for me to ever say anything good about this government, but credit to them where it's due for coming to their senses, listening to the stakeholders and reversing a bad decision. The ABC radio news today seemed to be dominated by the two backdowns, but the disaster funding issue is solved now so that's one less prickle in the government's undies.

 

With 18 months to the election and their polling numbers where they are, we can probably expect a few more bad ideas from them, but the test will be whether they can swallow their pride, correct their mistakes and move on.  

[old man emu]

If a business needs to pay the ATO money, probably from its BAS, what does it matter if the money is paid by digital transfer directly from a bank account; a transfer of moeny from a debit card, or the use of a credit card.? The ATO had got its pound of flesh.

 

Am I correct in thnking that if money was paid by a business using a credit card, then any interest charged by the credit card operator would be a legitimate tax deduction for the credit card holder? Would that be why the ATO doesn't want businesses paying by credit card??????

[Litespeed]

2 hours ago, old man emu said:

If a business needs to pay the ATO money, probably from its BAS, what does it matter if the money is paid by digital transfer directly from a bank account; a transfer of moeny from a debit card, or the use of a credit card.? The ATO had got its pound of flesh.

 

Am I correct in thnking that if money was paid by a business using a credit card, then any interest charged by the credit card operator would be a legitimate tax deduction for the credit card holder? Would that be why the ATO doesn't want businesses paying by credit card??????

Not how it actually works.

 

The problem was/is that when a business pays via a credit card it's the receiver that will pay the surcharge from the credit provider. 

This doesn't happen with direct transfer or debit cards.

The card company charges not a flat fee but a % of the payment. Then it also hits the payer with interest.

A normal transfer EFT or debit costs a fraction of a cent, hence the policy change.

 

Thus the ATO was up for a minimum $200 million bill for accepting credit payments under the new system from all the small businesses.

 

Should we the taxpayer subsidise small businesses to pay via credit?

 

Also that they rely on a constant credit card rollover indicates poor practice and a susceptibility to failure. 

Business used similar scare stories about needing to pay superannuation employee contributions when they a paid wages rather than using employees money as a piggy bank for months.

Similarly this practice could and did lead to companies going bust and super never been paid.

 

Policy wise it was and is a smart move, as it will create a change in business practices. Certainly way too many firms have dodgy finances, and need culling. 

 

I bet the banks are spewing also about all   the lost revenue from credit card taxation payments.

Edited 8 hours ago by Litespeed

[Grumpy Old Nasho]

3 hours ago, facthunter said:

You should not have to pay for something you didn't use. That should be a basic principle. Nev

That's what I keep telling you about CTP insurance ... if it's not used, you shouldn't have pay for it, you should get a refund.

[Jerry_Atrick]

11 hours ago, facthunter said:

You expect him to Mind -read do you?. I don't think the ATO have a big regular to and fro. with gov't. They are generally Independent in how they run their show.  They assess and collect what is Legislated by Gov't The way "SOME" Business's want to do it Passes the cost onto Other taxpayers.  Credit Cards are Contentious items The TAX office doesn't need the surety of Payment that Helps business feel good. But Be assured, The TAX office will GET their Money. Jim Chalmers is a "Doctor"of something so He's not your ordinary Dill as you Might Infer . We are STILL AAA rated and doing a lot better than most similar Countries. Check it up IF you don't believe me.  A business not being able to Pass on a gov't cost is BS. We pass on GST in full. . If you don't use a card you should get a price above those who do.  You should not have to pay for something you didn't use. That should be a basic principle. Nev

TBH, I am not sure I know what this means. Do I expect them to mind read? Of course not. I expect them to think. And of course, the ATO's operations are largely independent, but they do speak with their minister - it would be preposterous to say they wouldn't. Especially when a pre-implemented initiative is launched - there is usually a consultation period or some time before its implementation to give people time to adjust. Are you telling me the ATO wouldn't have said some time since its announcement and implementation - when they were preparing to pull the credit card payments - that they wouldn't have had a word. If that is the case and they knew it was going to impact a lot of businesses, then I would say that is incompetence of the ATO. Just to quote myself: 

11 hours ago, Jerry_Atrick said:

Now, the ATO issue. I get that little issue of credit card surcharges on the tax payment may have slipped Chalmer's mind. I mean I am not sure he has had the experience of running a small business and the cash flow issues that come with that. I am not even sure he would have bothered to consult the ATO on the move because the ATO is about tax, and not credit card payments.

A little sarcasm, I will admit, but I will put it simply: I get that Jim Chalmers wouldn't have consulted the ATO as he probably wasn't aware of the significance of credit card payments on taxation payments. I would be very surprised given the potential implications, they ATO didn't have a whisper in his hear.. and I am betting they put it like "well, we will lose xbn, so we will scrap it", not to say there will be a big impact to small business, because let's face it, they care little about it. 

 

Australia;s AAA rating has been around by at least one ratings agency (there are three big ones) since 2002 and across all 3 since 2011. And I am sure we agree there has been some pretty crap economic management in that period. So,. I am not sure what that bit has to add to the context. This is probably more down to Australia's resources boom than much else. And Chalmers being a PhD.. big deal. I interview one at least every 6 months and have been for about 10 years. I have probably hired four and kept one. An academic qualification does not automagically translate into real world capability. 

 

But, this post wasn't about Jim Chalmers. I have a lot of respect for him. It was about general government (including public service) incompetence - or maybe hubris - and how it leads to unintended consequences.. And how a decision in the interest in consumers - in this case hiding fees - may be not actually driven by such altruistic claims. 

And what does "A business not being able to Pass on a gov't cost is BS. We pass on GST in full. " What in my post does that relate to? BTW, there will probably be a lot of businesses that have had to swallow some of the GST to keep competitive with the big businesses. GST and VAT here work almost exactly the same.. and the hospitality industry especially suffer for it. 

 

Sorry if I yet again offended your sensibilities.. I wasn't picking on Labor.. there are plenty of examples on all sides.. 

Edited 1 hour ago by Jerry_Atrick

[Jerry_Atrick]

8 hours ago, Litespeed said:

Also that they rely on a constant credit card rollover indicates poor practice and a susceptibility to failure. 

I agree with most of your post.. and I agree that those who need to roll over credit every month are susceptible to failure. After all, the stats for new startups is never great. But there are two things to point out. First, those businesses that are needing to use it every time and liable to fail, probably do within 12 months. They will use all credit available to them. The banks aggregate your credit risk across all known forms you can have. If you have a mortgage, a credit card, a car loan, a personal loan, are the director is person of control in a private company that has a company loan and company credit card, chances are they know about all of them them and they aggregate them to give a credit risk profile. So chances are, if you're in stress, they will know. And then, if you default on one of those loans, you default on all of them - that is under the BASEL rules (2.1 to be precise), which Australia has incorporated in its law. So if you are making out your credit cards, chances are the house of cards will come falling down fast. My point is, if you are constantly relying on the most expensive form of debt to keep you afloat, you are only prolonging the inevitable a short period of time. 

 

However, how many of the businesses may (and I stress, may) be using it for the occasional - or even frequent, but not financially punitive cash flow management. For example, you may have a bunch of clients that are poor payers.. As BAS accrues generally in the period the sale was made and not the cash was taken, you would be simply waiting for payment )yes, there are exemptions to allow payment of BAS in the period payment is collected, but that is by far the exception). So, to cover the BAS and prevent punitive penalties, you resort to a credit card. I imagine a fair share of those that avail themselves to their credit cards are in this or some other bucket that doesn't mean they are about to go to the wall. There are over 2.5 million small/medium businesses in Australia at last count; there is ample room for the temporary cover versus go under businesses. Until we know the stats, jumping to the conclusion that all, or even a vast majority are about to go to the wall is just that.. jumping to a conclusion.

 

But that is thread drift. The thread is about government decisions and unintended consequences. 

 

What no one has picked up on is the fact that the "removal of credit card surcharges" is likely to mean that everyone pays for it whether or not they use a credit card.. and that it hides information from the consumer to give them a choice (or accept it). If I were a coffee shop owner, I may think I don't have the spare margin to absorb this. So, I would look at my sales of both credit and non credit cards; average them out and then apply the addition across all of them.. and the non credit card consumer subsidises the credit card user because I would want to keep my price increases as small as possible.  I would say that can become an unintended consequence - mainly because those in the position to make the decision have probably not thought about it.

 

 

Edited 26 minutes ago by Jerry_Atrick