Economist warns there is ‘every chance’ card surcharge ban could fuel inflation

Fresh fears are mounting that the government’s card surcharge ban could fuel inflation, after businesses began hiking prices to make up for the costs. One in six cafes have reportedly raised prices since the changes took effect, with one-third of those businesses increasing coffee prices by 50 cents. Credit card surcharge ban may fuel inflation Now, a financial expert has warned those price increases could flow through to inflation. Fort Blake Asset Management founder Christian Bayliss told Sunrise on Wednesday the surcharge changes had “every chance” of becoming inflationary. “I think there’s some unallowed consequences that we might have to expect as we look forward into the next inflation print,” he said.

His warning comes after businesses were banned from passing card processing surcharges directly on to customers from October 1. The government has argued the move will save Australians up to $1.6 billion a year, with Treasurer Jim Chalmers saying customers had been slugged with surprise fees when paying by card. But businesses have continued to face the underlying costs of accepting electronic payments, with many being forced to raise prices to absorb the costs. The Australian Taxation Office (ATO) has also announced it will stop accepting credit card payments from November 30. Bayliss said this is just another pressure on businesses, some of which had been using credit cards as a short-term source of working capital.

“When you think about it, a small business will typically use the credit card as a working capital facility,” he said. “It is able to get six weeks to seven weeks of interest-free money to basically pay its BAS, GST payments, and all of those sorts of things. That’s now been taken away.” He argued the loss of that facility could put further pressure on businesses already struggling with cash flow. “That is something I haven’t seen in any of the modelling or any of the coverage to date. So, there is every chance that there’s upside risk to inflation,” he said.

The ATO has confirmed card payments currently account for about 2.3 per cent of all tax payments. Bayliss said while only a small proportion of businesses used credit cards to pay tax, those businesses were more likely to be under financial pressure. “It is a small proportion but it is also typically those small businesses that are running against the red line that are really feeling the pressure of the strained consumption story and whatnot,” he said. He also rejected the suggestion businesses were primarily using credit cards to collect rewards points, arguing many are using them to “keep themselves afloat”.