With the financial year having come to a close last month, many Australians are still battling credit card debt. Therefore it is interesting to see that the Australian Taxation Office is now allowing people to pay their tax bills with their credit card.
Many financial experts have slammed them as being “reckless” for trialing this scheme starting earlier this year. So if you have to pay money to the Australian Taxation Office you can now do so with your MasterCard, Visa and Amex. Expect to pay a 1.05 per cent surcharge though for the privilege of paying with the plastic fantastic.
Consumer and legal advocates furious about possibilities of credit card debt mounting
The Consumer Credit Legal Centre is demanding from the ATO to abandon this exercise because they fear it will add to the already mounting debt crisis of the Australian public. Many argue this scheme will trap taxpayers in a cycle of high-interest tax payments that will never end.
Katherine Lane, principal solicitor at the Consumer Credit Legal Centre in NSW said: “The ATO is shirking its responsibility to help people in financial hardship and is effectively handing them over to the banks. We already know the banks are guilty of irresponsible lending, often increasing people’s credit limits without their permission, and while we have these kinds of predatory lending practices it is reckless to tempt people into piling more debt on to their cards.”
A CARE Financial Counselling Service representative, Carmel Franklin stated: “A lot of people are losing their jobs or having their hours cut back and they need all the help they can get. That means suspending interest payments, not directing them to credit cards that charge 20 per cent a year. Very often the tax bills will already have accrued interest and charges by the time they are put on the credit card so people can get hit twice. This is a bad idea for a whole variety of reasons.”
Ms Franklin also said that many small business owners and self-employed workers were already having substantial tax debts, and therefore these people would never manage to pay off their credit card by the time of the next bill cycle.
She said: “They will be stuck in a never-ending cycle of tax payments and pay a fortune in interest at the same time.”
Choice, an Australian consumer group is actually advising people to barricade the scheme and find other means to pay their tax bill instead. Spokesman for Choice said: “Clearly it is not ideal to put tax bills on to your credit card, especially if you are financially stretched. A similar scheme in the UK was introduced recently and caused a lot of controversy. If people are in genuine hardship they should fall back on the ATO’s hardship provisions, which are designed to help people who are really struggling.”
Although this can be considered a bad decision on behalf of the ATO, credit cards can provide necessary cash flow to be able to cater for situations exactly like these where you need some time to be able to repay a debt. If used effectively, and the interest is repaid, it is actually quite a convenient option that the ATO has provided.
Despite all the conundrum this scheme has caused in the country the ATO seems positive about the effect it has had on participants so far. They reported that 12,000 credit card payments were made worth over $42 million. There were no reports whether the trial would have added to the already existing credit card debt or not. They will evaluate the scheme next month.