House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Minister for Competition, Charities and Treasury, the Hon Dr Andrew Leigh MP)

Glossary

This Explanatory Memorandum uses the following abbreviations and acronyms.

General outline and financial impact

Surcharging

Outline

The Payments Surcharges Bill, Imposition Bill, and Consequential and Other Matters Bill introduce new legislation, which together will formalise longstanding Commonwealth practice by providing express legislative authority for Commonwealth entities to continue to charge and collect payment surcharges where the entity has the legislative authority to collect a payment.

Date of effect

The Payment Surcharges Bill and the Imposition Bill commence on the day after Royal Assent. The consequential amendments and amendments relating to payment surcharges charged before commencement in the Consequential and Other Matters Bill commence on commencement of the Payment Surcharges Bill. The amendments relating to payment surcharges charged before commencement will apply to payment surcharges charged or collected from 1 January 2003.

Financial impact

The amendments are estimated to have nil or minimal financial impact.

Human rights implications

The Bills raise human rights issues. See Statement of Compatibility with Human Rights - Chapter 2.

Compliance cost impact

Nil. The amendments maintain current payment surcharging practices of Commonwealth entities.

Chapter 1: Authority for Commonwealth entities to surcharge

Outline of chapter

1.1 The Payments Surcharges Bill, Imposition Bill, and Consequential and Other Matters Bill introduce new legislation, which together will formalise longstanding Commonwealth practice by providing express legislative authority for Commonwealth entities to continue to charge and collect payment surcharges where the entity has the legislative authority to collect a payment.

Context of amendments

1.2 On 15 October 2024, the Government announced it is addressing excessive surcharges and is prepared to ban debit card surcharging from 1 January 2026, subject to consultation being undertaken by the RBA. The RBA is responsible for regulating the payments system and is undertaking a Review of Merchant Card Payment Costs and Surcharging.

1.3 The amendments formalise and provide certainty about the Commonwealth's current payment surcharging arrangements. That is, Commonwealth entities can impose a payment surcharge where they have authority to collect a payment. The amendments will also facilitate the Government's commitment on debit card surcharging after the RBA review, by providing a framework for any changes to whole-of-Government surcharging policy to be adopted by Commonwealth entities quickly and efficiently.

1.4 The amendments apply retrospectively from 1 January 2003 to align with when the RBA first regulated payment surcharging as part of the then broader payments systems reforms.

1.5 Payment surcharges are commonly imposed by businesses and governments across Australia, including by Commonwealth entities. A surcharge is an additional amount paid by a person when using certain payment methods to pay an underlying amount. Payment surcharges are limited to the amount it costs the merchant (including a Commonwealth entity) to accept that type of payment for that transaction under arrangements with the merchant's banking provider.

1.6 Surcharging signals to consumers the cost of their payment method and acknowledges the difference in costs across payment methods. When making payments to Commonwealth entities, generally non-surcharge payment options will be available but, for reasons of convenience and to access card benefits such as reward programs, many consumers choose to pay with cards.

Summary of new law

1.7 The Payments Surcharges Bill, Imposition Bill, and Consequential and Other Matters Bill introduce new legislation which codifies current practices that, where a Commonwealth entity has legislative authority to collect a payment, it also has authority to charge and collect a payment surcharge in relation to that payment.

1.8 The Payment Surcharges Bill also provides the Minister with the power to determine Commonwealth surcharging policies, which Commonwealth entities must take all reasonable steps to comply with when deciding to charge or collect a surcharge. This will ensure consistency of surcharging practices across the Commonwealth, and alignment between Commonwealth practices and broader reforms being introduced across the whole of the economy.

1.9 The Consequential and Other Matters Bill makes relevant consequential amendments and retrospectively applies the legislative authority to charge and collect payment surcharges to payments made on or after 1 January 2003. The Imposition Bill would impose a tax equivalent to the amount of the payment surcharge that was collected in the event the application of the new surcharging framework is beyond the other powers of the Commonwealth to some extent.

Detailed explanation of new law

Authorisation of payment surcharges

1.10 Where Commonwealth entities have the power, function, or duty to collect a payment (a base payment) under the law of the Commonwealth, a State, or a Territory, they may charge and collect a payment surcharge in relation to that base payment. This applies prospectively and retrospectively from 1 January 2003.

[Paragraph 5(1)(a) of the Payment Surcharges Bill and Schedule 2, items 2 and 3 of the Consequential and Other Matters Bill]

1.11 Where a base payment is already a surchargeable payment under a Commonwealth, a State, or a Territory law, the Commonwealth entity is not entitled to charge and collect a payment surcharge under the new legislation. This would avoid the potential for the legislation to inadvertently affect existing legislation that deals with the collection of payment surcharges. This ensures the Parliament can readily set and retain special rules for payment surcharging in relation to certain payments in special circumstances.

[Paragraph 5(1)(b) of the Payment Surcharges Bill]

1.12 A surchargeable payment is a payment for which a law of the Commonwealth, a State or a Territory gives a Commonwealth entity the power, function or duty of charging or collecting a payment surcharge in relation to the payment. It does not matter whether the payment to the entity was mandatory or discretionary, or whether or not the entity had to take any active steps to receive the payment.

[Clause 4 of the Payment Surcharges Bill]

1.13 Commonwealth entity has the meaning given by subsection 10(1) of the PGPA Act. The meaning of Commonwealth entity is intended to be of wide import so as to cover all Commonwealth agencies and bodies, both corporate and non-corporate.

[Clause 4 of the Payment Surcharges Bill]

1.14 The amendments cover arrangements where a Commonwealth entity collects amounts for and on behalf of a Commonwealth statutory officeholder or other official, or where that officeholder or official forms part of that Commonwealth entity.

1.15 A 'payment surcharge' means:

•

an amount charged, in addition to the amount of the payment, for processing the payment; or

•

an amount (however described) charged for one payment method rather than another being used to make the payment.

This meaning is consistent with the meaning of 'payment surcharge' in the Competition and Consumer Act 2010. Part IVC of that Act defines payment surcharging for the purposes of regulating the amount a business can charge a customer in relation to a payment surcharge. That Part does not apply to Commonwealth entities unless they are carrying on a business.

[Clause 4 of the Payment Surcharges Bill]

1.16 Payment surcharges must not amount to a tax. Payment surcharges are charged and collected by the Commonwealth on a cost recovery basis, offsetting the costs imposed by their banking provider for facilitating the use of particular payment methods.

[Subclause 5(2) of the Payment Surcharges Bill]

Setting surcharging arrangements

1.17 The Minister may, by legislative instrument, make Commonwealth surcharging payment policies relating to the charging, collecting and refunding of payment surcharges. It is expected that the Minister will consult relevant ministers and agencies in developing such policies. Policies will likely include requirements for Commonwealth entities to publish details regarding their surcharging practices, including considerations for the issuing of refunds. This will ensure transparency of surcharging practices across all Commonwealth entities.

[Subclause7(3) of the Payment Surcharges Bill]

1.18 It is appropriate that the Minister has the power to make Commonwealth surcharging policies, by legislative instrument, as this will allow any changes following the RBA's review of merchant payment costs and surcharging to be implemented quickly. An instrument-making power for the Minister will ensure consistency of surcharging practices across the Commonwealth, and alignment between Commonwealth practices and broader reforms being introduced across the whole of the economy, which are generally made by way of legislative instrument under existing payment system laws. Additionally, the Commonwealth surcharging policies are subject to both sunsetting and disallowance, which will allow for appropriate Parliamentary scrutiny.

1.19 When setting its surcharging arrangements, a Commonwealth entity must take all reasonable steps to comply with any Commonwealth surcharging policies. However, a Commonwealth entity's failure to comply with the surcharging policies does not invalidate its decision to charge a payment surcharge in relation to a payment as commercial certainty is required to ensure the proper functioning of Commonwealth administration, for which policies are generally applied to many millions of entities and transactions. It will be a rare circumstances in which a Commonwealth entity will have inadvertently failed to comply with a surcharging policy, and while there will be an expectation of the entity quickly adjusting its system and policies moving forward, it would be administratively complex and costly to rectify past transactions.

[Subclauses7(1) and (2) of the Payment Surcharges Bill]

1.20 Commonwealth entities have the discretion to refund, in whole or in part, a payment surcharge that it charges and collects where the Commonwealth entity believes that a refund is appropriate. As surcharges are imposed to recover the cost to the Commonwealth of certain banking costs associated with customers using particular methods, refunds are expected to be made in only special circumstances, which can be further detailed in the Commonwealth's surcharge policies.

[Clause 6 of the Payment Surcharges Bill]

1.21 However, there is no obligation on Commonwealth entities to refund a payment surcharge where the entity has refunded, in full or in part, the base payment. Any payment surcharge paid is part of the cost of making the initial transaction.

1.22 A decision by a Commonwealth entity to charge and collect a surcharge payment or a decision to issue or not issue a refund will not be subject to merits review. As noted in the Administrative Review Council's publication, What decisions should be subject to merits review? 1999, merits review of decisions which have such limited impact that the costs of review cannot be justified is generally not appropriate. While there may be a large number of surcharge payments charged across Commonwealth entities, the amount of each individual payment is likely to be very small. As such, it would not be an effective allocation of Government resources to provide a system of merits review where the cost would be vastly disproportionate to the amount of surcharge paid by an individual person.

1.23 Further, as surcharges are paid contemporaneously with base payments, it is not feasible for merits review to be undertaken in a timely way that facilitates the ongoing collection of base payments.

Imposition of payment surcharge tax

1.24 In the event that authorising a Commonwealth entity to charge and collect a payment surcharge retrospectively is beyond the other powers of the Commonwealth Parliament to some extent, the Imposition Bill imposes a tax equivalent to the amount of the payment surcharge that was collected.

[Clauses 4 and 5 of the Imposition Bill]

1.25 However, if the imposition of the tax would exceed the legislative power of the Commonwealth in relation to a particular payment, the tax is not imposed in relation that payment.

[Clause 6 of the Imposition Bill]

Consequential amendments

1.26 The Consequential and Other Matters Bill makes various consequential amendments to ensure consistency across Commonwealth legislation by repealing existing provisions that provide authority to charge and collect payment surcharges in relation to certain payments. These consequential amendments only apply in relation to future payments.

[Schedule 1 of the Consequential and Other Matters Bill]

1.27 Legislative instruments made under the provisions that have been repealed are also repealed.

[Schedule 1, items 1, 2 and 6 of the Consequential and Other Matters Bill]

1.28 The Consequential and Other Matters Bill also amends Schedule 2 to the ADJR Act to provide that a decision by a Commonwealth entity to impose a surcharge, or refund a surcharge, forms part of a class of decisions that are not decisions for which a statement of reasons may be obtained under section 13 of the ADJR Act. The requirement for Commonwealth entities to provide a statement of reasons on request whenever a payment surcharge is charged and collected or refunded would result in a significant, disproportionate and unjustifiable administrative burden given the large number of surcharge payments charged across Commonwealth entities, and the typically small amount of each surcharge. Additionally, any decision by a Commonwealth entity to charge, collect or refund a payment surcharge must take reasonable steps to reflect the whole-of-Government surcharging policy, therefore there is limited discretion for Commonwealth entities when deciding to impose a surcharge in relation to individual cases.

[Schedule 1, item 8 of the Consequential and Other Matters Bill]

Commencement, application, and transitional provisions

1.29 The Payment Surcharges Bill and the Imposition Bill commence the day after Royal Assent.

1.30 The consequential amendments and amendments relating to payment surcharges charged before commencement in the Consequential and Other Matters Bill commence on commencement of the Payment Surcharges Bill.

1.31 The provisions of the Consequential and Other Matters Bill relating to the liability to pay the Commonwealth entities (payment surcharges) tax commence on the commencement of both the Payment Surcharges Bill and the Imposition Bill.

1.32 The Consequential and Other Matters Bill applies to payment surcharges charged and collected on or after 1 January 2003. This provides legislative certainty in relation to surcharges imposed from when the RBA first regulated payment surcharging. As this maintains the ongoing approach to surcharging by Commonwealth entities, and noting the amount of any surcharge previously paid by any individual is likely to have been minor, this is not likely to materially disadvantage any person.

[Schedule 2, items 2 and 3 of the Consequential and Other Matters Bill]

1.33 The retrospective application of the Consequential and Other Matters Bill has no effect to the extent (if any) to which its operation would impermissibly result in the acquisition of property from a person otherwise than on just terms.

[Schedule 2, items 4 of the Consequential and Other Matters Bill]

1.34 Where the Commonwealth or a Commonwealth entity would be liable to pay a person an amount as a result the person paying or purportedly paying an amount which a Commonwealth entity charged or purportedly charged as payment surcharge in relation to a base payment which was not a surchargeable payment, that person is liable to pay a payment surcharge tax. The Commonwealth or Commonwealth entity must set off the amount of payment surcharge tax that the person is liable to pay against the liability owed to that person.

[Schedule 2, item 5 of the Consequential and Other Matters Bill]

Chapter 2: Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Commonwealth Entities (Payment Surcharges) Bill 2024;

Commonwealth Entities (Payment Surcharges) Tax (Imposition) Bill 2024;

Commonwealth Entities (Payment Surcharges) (Consequential Provisions and Other Matters) Bill 2024

Overview

2.1 These Bills are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

2.2 The Commonwealth Entities (Payments Surcharges) Bill 2024, Commonwealth Entities (Payment Surcharges) Tax (Imposition) Bill 2024, and Commonwealth Entities (Payment Surcharges) (Consequential Provisions and Other Matters) Bill 2024 introduce new legislation, which together will formalise longstanding Commonwealth practice by providing express legislative authority for Commonwealth entities to continue to charge and collect payment surcharges where the entity has the legislative authority to collect a payment.

Human rights implications

2.3 The Consequential and Other Matters Bill engages the right to a fair trial under Article 14 of the International Covenant on Civil and Political Rights (ICCPR). Article 14 of the ICCPR provides that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.

2.4 The Consequential and Other Matters Bill amends Schedule 2 to the ADJR Act to provide that a decision by a Commonwealth entity to charge, collect or refund a surcharge, forms part of a class of decisions that are not decisions for which a statement of reasons may be obtained under section 13 of the ADJR Act. This may limit a person's right to procedural fairness in seeking review of a decision under the ADJR Act.

2.5 The requirement for Commonwealth entities to provide a statement of reasons on request whenever a payment surcharge is charged and collected or refunded would result in a significant, disproportionate and unjustifiable administrative burden given the large number of surcharge payments charged across Commonwealth entities, and the typically small amount of each surcharge.

2.6 Additionally, a Commonwealth entity must take reasonable steps to reflect the whole-of-Government surcharging policy when deciding to charge, collect or refund a payment surcharge, therefore there is limited discretion for Commonwealth entities when deciding to impose a surcharge in relation to individual cases.

2.7 Neither the Commonwealth Entities (Payments Surcharges) Bill 2024 or the Commonwealth Entities (Payment Surcharges) Tax (Imposition) Bill 2024 engage human rights.

Conclusion

2.8 These Bills are compatible with human rights and freedoms.