A surcharge ban moves the cost — the tax office just showed where

The one merchant that cannot put up its prices

Ban a surcharge and the fee does not vanish. It moves. For a café it moves into the price of coffee. For the Australian Taxation Office — the agency that collects the nation’s tax — there is nowhere for it to move, because a tax debt is a number fixed by law and no commissioner can mark it up by a percentage point to cover a card fee. So the tax office reached for the only lever it had left, and in late September announced it would stop accepting credit cards from 1 December.

That followed the Reserve Bank’s decision to scrap card surcharges from 1 October. Business reacted badly enough that the Prime Minister and the Treasurer intervened, underwriting the cost so cards keep working at the tax office until mid-2027. On Sunday the Assistant Treasurer, Daniel Mulino, said the government had known since July that the tax office was looking at options and preferred not to accept credit cards at all. Its instruction, he said, was to keep engaging with the card companies and allow a transition period.

The political story is who knew what in July. The financial story is better: a known, mechanical consequence of a central bank reform was handled as an operational payments decision by an agency, and when that decision proved unpopular it was reversed with money rather than with a rule.

What ‘underwriting’ actually means

Somebody still pays the card companies. Until mid-2027 it is the Budget — that is, every taxpayer, including the ones who pay by bank transfer and always have. The beneficiaries are the people and businesses who settle tax bills on credit cards, and on large liabilities the dollar amounts are not trivial. Some of that is genuine working capital for a business short of cash at the wrong point in the quarter. Some of it is a float and a points balance. Either way, the cost of providing it has just been socialised.

That is the opposite of what surcharging was for. A surcharge is crude and was often set above cost, but its logic was that the person who chooses the expensive payment method carries its expense. Removing it does not abolish the cross-subsidy; it hides it. In a supermarket the hiding place is the shelf price, and the subsidy runs from cash and debit customers to credit customers. At the tax office there is no shelf price, so the hiding place is the Commonwealth’s accounts.

Nor is the arrangement priced in public. There is no published figure for what the underwriting costs per month, no published rule for what happens at mid-2027, and no legislation behind it. It is a discretionary payment keeping a payment channel open, with an expiry date that guarantees the same fight again.

The two instructions that were not an answer

Mulino’s account is that the tax office was told to keep engaging with the credit card companies. Engage about what? A merchant’s acceptance cost is mostly built from fees set by the card schemes and the banks that issue the cards, not by the merchant’s negotiating skill. A very large merchant can shave the margin a payment processor takes. It cannot vote itself out of the underlying economics of a premium rewards card.

The second instruction — allow a transition period — is time, not a decision. Between July and late September, on the government’s own telling, the question of who bears the fee once the surcharge is gone was left sitting inside an agency’s payments operations. It surfaced as a two-month notice to the business community, and was settled by the Prime Minister and the Treasurer within weeks. That is not how a foreseeable consequence of a payments reform should be resolved.

The case against this argument

The strongest defence of the ban is that surcharging in Australia had become a mess: opaque, inconsistently applied, frequently above the merchant’s actual cost, and impossible for a customer to judge at the terminal. Forcing acceptance costs into headline prices is how much of the world works, and it makes advertised prices honest. On that reading, the tax office is a freak case — enormous payment values, lots of commercial cards, a fee that in dollar terms is large — and a temporary subsidy while a special arrangement is worked out is a sensible piece of government.

I accept the first half and reject the second. If the tax office is a special case, legislate the special case. Parliament can decide whether public agencies collecting a statutory debt may charge for an expensive payment channel, with the charge capped at cost and published. What it should not do is leave the matter as a cash transfer with an arbitrary end date, because the precedent now stands for every other collector that cannot price: a council, a court registry, a toll road, a regulated utility. Each of them faces the identical arithmetic, and each has just watched a refusal threat produce an underwriting cheque.

The thing nobody has put a number on

The surcharge ban was sold as making prices clearer. At the tax office it has made one cost completely invisible. Clarity that stops at the terminal and leaves the Budget quietly carrying the difference is not clarity; it is relocation with better public relations.