The federal government is considering introducing a cashless welfare system, with a trial to be run in the South Australian town of Ceduna. Cashless welfare is inherently discriminatory and generally just a very bad idea. There are a number of models, but they can be broadly lumped into two categories: opt-in, and opt-out. Opt-in would mean that only authorised outlets would be able to process the payments, whereas an opt-out system would force companies that provide undesirable services (such as alcohol) to register as not being able to receive such transactions. Opt-out is a better option, but it still has many problems.

1 It isn’t designed to help, it is designed to make you dislike welfare recipients

This proposal is a way to demonise individuals who receive welfare as being alcoholics and drug users, ignoring that alcohol and drug use occurs across all stratifications of Australian society. The welfare state is very large, and provides benefits to a broad range of society. Whether it be child payments, the old aged pension, war pensions, the government gives welfare to lots of people. So why is the government only restricting the range of goods purchased by those who are seeking work?

There would be outrage if the capital gains tax discount, which is a form of tax relief, was paid out in non-tradable food ration coupons. We should feel the same way about micromanaging the lives of people who have fallen on bad times.

2 It restricts choice

It also ignores that individuals have a variety of needs. Sometimes individuals need to buy large items, or items that are not necessarily stocked by Coles or Woolworths. Cashless welfare, under an opt-in model, prevents people from buying things that they need when they need them.

3 It puts poor individuals at risk when systems go down

Individuals who have essentially no physical cash will find it hard to pay for even the most basic of items (e.g. a loaf of bread) in situations where the computer system is unavailable, for example due to a computer glitch, or during a power outage. Cashless welfare during the Queensland floods would have made a tough situation that much harder for the poor.

4 It doesn’t work for small items

Sometimes, you just need a litre of milk. Ask to pay with a card, and the shopkeeper will not be happy. Cashless welfare prevents people from buying small items that cannot typically be bought with cards. Forcing businesses to process small payments with card will increase the cost of doing business, and add unnecessary expense for retailers.

5 It discriminates based on culture

The restriction of choice in places where purchasing can occur will also discriminate based on cultural grounds. Such cashless welfare systems are unlikely to be implemented in shops where electronic payments are not currently accepted. The impact is that people from minority groups will not be able to purchase basic foods food their families.

6 It prevents individuals from making innovative purchases

The system restricts individuals from purchasing non-staple goods not traditionally considered vital, and hinders social mobility by stopping people buying goods, starting businesses and exiting the poverty cycle. The system assumes welfare recipients are incapable of risky and innovative business decisions, and only helps to perpetuate the low-wage cycle.

While it may seem wrong to some people that a person who is on welfare uses some of their welfare money to buy a smartphone, they may do so in order to have an internet connected device. Considering that the majority of jobs are now listed at online, and that the majority of Centrelink services are accessed online, internet connectivity is a necessity. A cashless welfare system under an opt-in system makes it harder for individuals to buy things that will help them get out of poverty and ultimately end their reliance on welfare.

7 It will kill small business and make welfare more expensive

Restricting choice doesn't give greater value for money. By restricting choice, you restrict competition between players. If a small shop does not have the facilities to process such welfare cards, they may have a substantial reduction in patronage. Regulatory capture is a real risk under such situations. Large corporations are much better at dealing with highly regulated markets. Adding an additional barrier between customers and shop owner will make it harder for small business to compete. With fewer businesses available to compete for customers, the price of maintaining an individual on welfare will almost certainly go up.

8 It doesn’t work for its intended aims

In countries where food stamps have been in place for some time, welfare recipients are not prevented from drinking or taking drugs. Rather, individuals go to the shops and buy produce that can be easily traded for the items that they desire. It is therefore reasonable to expect that introducing a cashless welfare system in Australia would give rise to a similar barter system here. The idea that restricting the use of money will stop trade is ridiculous and ignores the fact that humans have been trading without the use of government backed fiat money for millennia.