Economists warn Australia credit card surcharge ban could raise inflation
A ban on credit card surcharges introduced on October 1, 2026, to provide cost-of-living relief could inadvertently raise inflation and put upward pressure on interest rates, independent economists warned, sparking sharp internal frustration among Labor MPs over the economic competence of cabinet.
ATO Delays Credit Card Payment Ban for Small Businesses
Opposition Leader Angus Taylor called on Treasurer Jim Chalmers to resign following an October 9, 2026 policy backdown where the Australian Taxation Office was instructed to delay its own ban on credit card payments. The initial ATO prohibition had prevented small business owners from using credit cards to pay tax instalments while maintaining cash flow. The delay pushes the enforcement date to the end of the financial year.
The ATO reversal followed widespread reports that cafes, restaurants, and other businesses had increased prices to absorb the cost of a Reserve Bank decision, championed by Labor MPs, to ban surcharge fees. The $1.6 billion in yearly fees can no longer be charged directly to consumers, but banks still levy transaction charges. Consequently, businesses began passing on the cost, with some enterprises raising retail prices by more than the actual surcharge amount to compensate for shrinking profit margins.
The ATO previously sparked controversy by stating it would ban credit card payments because absorbing $200 million in fees was not appropriate when it could not raise tax charges to cover the cost. The federal government has now stepped in to provide additional funds to the tax office to extend the transitional period. This arrangement effectively means taxpayers are subsidising the tax office so that other taxpayers avoid paying the surcharge directly.
“We’ve stepped in to ensure that the tax office can take credit card payments until the end of June next year,” Treasurer Jim Chalmers told reporters on Friday. “This will give them the time to consult more with small business and to get it right.”
Labor Caucus Criticises Cabinet Economic Agenda
The policy handling exacerbated tensions within the Labor caucus, sharpening internal criticism of the cabinet’s broader economic agenda. MPs argued that Prime Minister Anthony Albanese and Treasurer Jim Chalmers appeared blind to the probability of consumer price increases.
One anonymous Labor MP criticised the administration’s commercial experience, noting a perceived disconnect within leadership. Minister Anne Aly, and backbenchers Mike Freelander and Rob Mitchell also raised public or private concerns over the implementation and lack of holistic inflation strategy. Independent economist Saul Eslake and UNSW professor Richard Holden both stated that inflation could rise as a result of the changes. Eslake estimated a conservative inflation increase of 0.1 per cent, while noting the figure could climb higher if firms inflated prices beyond the direct surcharge fee.
Holden cited the economic principle of “menu costs,” explaining that businesses dislike changing prices frequently and now possessed an opportunity to pass on larger increases while blaming government policy. Holden noted that Australia’s cash rate remains the second highest in the OECD after Iceland, making sticky inflation a primary economic challenge.
Opposition Leader Angus Taylor maintained that the tax office should have reversed its ban outright rather than merely delaying it, asserting that the administration’s short-term interventions were actively damaging the broader economy.