Elderly Australians committing welfare fraud on a massive scale are behind the extraordinarily high number of $100 notes in circulation in Australia, according to a former senior Reserve Bank official.
The Herald revealed yesterday there are now ten green $100 notes in circulation for each Australian, far more than the more-commonly seen orange $20 notes.
One popular explanation is that they are used for illegal transactions as part of the cash economy, something former Reserve official, Peter Mair, rejects as a “furphy”.
But, in a letter to Reserve governor Glenn Stevens dated July 4, Mr Mair laid the blame squarely on elderly people wanting to get the pension and hiding their income in cash to ensure they qualify for the means-tested benefit.
“The Bank is basically facilitating a tax avoidance scheme by issuing high denomination notes,” he told the Herald. “They are not needed for day-to-day transaction purposes, or even as reasonable stores of value."
His best guess is the average pensioner couple holds up to $50,000 in undeclared $50 and $100 notes in order to get access to the pension.
Mr Mair added that when the green plastic $100 note replaced the grey paper note in 1996, the Martin Place headquarters of the Reserve Bank received regular visits from retirees wanting to withdraw large quantities of the new notes. He said the commercial banks had sent them to the Reserve Bank because they didn't have enough $100 notes on hand.
Mr Mair says the return for an Australian close to getting the pension who holds $10,000 in cash, rather than declaring it, is “enormous”...
“If putting it under the bed or in a cupboard means you qualify for the pensioner card you get discounted council rates, discounted car registration, discounted phone rental - in percentage terms the return is enormous,” he said.
Mr Mair is a former senior Reserve Bank manager responsible for the payments system. He assisted both the Campbell and Wallis inquiries into the financial system.
He used comparisons of the per capita holdings of large denomination currency in Australia and New Zealand to back his argument.
“In broad terms the average value of notes held by New Zealanders is about one third of the $A2000 held by Australians - almost all of which by value is in the $50 and $100 denominations,” he wrote in his letter to the Reserve Bank governor.
“An obvious explanation for the difference is means-test free age-pensions in New Zealand.”
His letter to the governor proposes phasing out the $100 and $50 denominations which he says technology has rendered unnecessary.
“Cards and the internet have delivered a body blow to high denomination bank notes, they are redundant,” he told the Herald/Age. “There is no longer any point in issuing them except to facilitate tax dodging.”
“The authorities would announce that from, say, June 2015 every $100 and $50 note could be redeemed but no new notes would be issued. After June 2017 every note could only be redeemed at an annual discount of 10 per cent. It would mean that after two years each $100 note could only be redeemed for $80, and so on.”
The letter acknowledges the proposal would be “contentious” and says it should not be done “in any way precipitously” but says as retail payments become progressively more electronic it will become inevitable.
“What would remain in circulation are coins and a modestly expanded issue of currency notes in the $10 and $20 denominations: there is every reason to expect that a national currency issue of this character would soon be adequate to meet the reasonable needs of a community ever more exclusively making substantial payments electronically,” the letter says.
Mr Mair would also strip the Reserve Bank of authority for issuing notes, handing it back to the Treasury which had it until 1911.
“Treasury already issues our coins. If it issued our notes as well it would be much more interested than the Bank in making sure people didn't hoard them to load up on the pension, because it pays the pension.”
In today's Canberra Times, Sydney Morning Herald and Age
. Why do we have so many $100 notes?
. OUR CURIOUS STASH: We're loaded with cash. Except that most of us aren't.
. More $100 notes than $20 notes?