For years, Australia appeared to be heading steadily towards becoming a largely cashless society.

Contactless cards, mobile wallets and digital banking transformed the way Australians paid for everything from groceries to coffee, while cash steadily faded from everyday use.

But recent data suggests that trend has begun to shift.

According to economist Jason Murphy, the growing use of cash should not necessarily be viewed as a sign that Australians are rediscovering a love of notes and coins. Instead, he argues it reflects mounting financial pressures, a booming illicit tobacco market and an expanding cash economy that may be reducing tax collections.

Rather than celebrating the return of physical currency, Murphy believes Australians should see it as a possible indicator of broader economic stress.

“Cash is back,” Murphy wrote, describing what he sees as an unexpected reversal after years of declining cash use.

He rejected the idea that privacy concerns or nostalgia are the primary drivers behind the trend.

Instead, he argues that practical economic incentives are encouraging more Australians to use cash despite the convenience of electronic payments.

Digital payments remain faster, simpler and generally safer for most everyday transactions. Cash, by comparison, requires ATM withdrawals, can attract withdrawal fees, is easier to lose and offers none of the convenience of tap-and-go technology.

If convenience alone determined consumer behaviour, Murphy argues, Australians would continue moving away from cash.

So why has physical money become more visible again?

Murphy points to two major factors.

The first is Australia’s expanding illicit tobacco market, where cash remains the dominant payment method.

Australia has some of the world’s highest tobacco excise taxes, creating strong financial incentives for illegal cigarette sales. Law enforcement agencies have spent several years investigating organised crime groups linked to the illegal tobacco trade, while governments have acknowledged billions of dollars in forgone excise revenue.

Because many illegal tobacco transactions occur outside the regulated retail system, cash continues to play a central role in those purchases.

The second factor identified by Murphy is the ongoing cost-of-living crisis.

Small business operators and sole traders facing rising operating costs are increasingly offering discounts for customers paying in cash.

Tradespeople, mechanics, cleaners, hairdressers, cafés and numerous service businesses may prefer cash because it avoids merchant transaction fees and, in some cases, creates opportunities for income that is not fully declared for tax purposes.

Murphy stresses that he does not endorse tax evasion.

He argues taxes remain essential for funding public services and maintaining a functioning society.

Nevertheless, he suggests economic pressures are making some businesses and consumers more willing to participate in cash transactions than they might have been during periods of stronger household finances.

Australia’s cost-of-living pressures have intensified over recent years as households have faced elevated inflation, higher mortgage repayments, increased rents and rising insurance, energy and grocery costs.

Although personal income tax cuts have provided some relief, Murphy argues that tax collections have continued to increase significantly over the past five years once inflation is taken into account.

According to his analysis, this has left many households with less disposable income despite continued employment growth.

One of the strongest indicators attracting official attention comes from the Australian Taxation Office.

The ATO’s latest Goods and Services Tax gap report estimates the net GST gap increased to $8.7 billion during the 2023–24 financial year, representing approximately 9.4 per cent of the theoretical GST that should have been collected, up from $8.1 billion the previous year.

The GST gap measures the difference between the tax expected to be collected under full compliance and the amount actually received.

Not all of that shortfall reflects deliberate tax avoidance. It can also result from calculation errors, insolvencies and administrative mistakes.

However, undeclared cash transactions remain one contributor identified by tax authorities.

Murphy argues that the increasing GST gap is consistent with broader evidence suggesting more economic activity is taking place outside fully reported electronic payment systems.

Reserve Bank data also shows that the long-term decline in transactional cash use has slowed markedly.

While cash usage fell dramatically during the COVID-19 pandemic, more recent indicators suggest demand has stabilised and, in some measures, modestly increased. The RBA notes that ATM withdrawal values have remained relatively stable after years of decline, even though electronic payments continue to dominate overall spending.

The Reserve Bank’s Consumer Payments Survey has documented one of the world’s fastest shifts towards digital payments over the past two decades.

Cash accounted for around 70 per cent of consumer payments in 2007 but had fallen to just 13 per cent by 2022. More recent survey results indicate cash has edged slightly higher as a share of transactions, although electronic payments remain overwhelmingly dominant.

The RBA has consistently emphasised that cash still performs several important functions within Australia’s payment system.

It remains essential for many older Australians, vulnerable communities and people living in regional areas where digital services may be less reliable.

Cash also serves as an important backup during telecommunications outages, natural disasters and banking disruptions.

For these reasons, both the federal government and the Reserve Bank have committed to preserving reasonable access to cash even as digital payments continue expanding.

However, Murphy distinguishes between maintaining access to cash and celebrating increased reliance on it.

In his view, a growing cash economy often reflects financial strain rather than economic confidence.

When households feel financially secure and businesses can operate profitably while meeting all their tax obligations, electronic payments tend to dominate because they are faster and more convenient.

When cash becomes more attractive, Murphy argues it can indicate that people are searching for ways to stretch limited budgets or reduce business costs.

His argument also raises broader policy questions.

If illicit tobacco sales continue expanding, governments face not only reduced tax revenue but also increased opportunities for organised criminal groups to generate income outside legitimate markets.

Likewise, if more businesses increasingly rely on undeclared cash payments, governments may experience growing revenue losses that ultimately reduce funding available for infrastructure, healthcare, education and other public services.

At the same time, many economists acknowledge that legitimate reasons for using cash remain.

Some households deliberately withdraw weekly budgets in cash to help control spending.

Others value the privacy that physical currency provides or simply prefer avoiding card surcharges imposed by some retailers.

Research has also found that physically handing over cash can make consumers more conscious of their spending than frictionless digital transactions.

The Reserve Bank has repeatedly stressed that maintaining cash availability remains important even as Australia continues modernising its payments system.

Recent government initiatives aimed at protecting access to cash for essential purchases reflect that continuing commitment.

Nevertheless, Murphy believes the recent increase in cash transactions deserves careful attention.

Rather than interpreting it as a cultural shift back towards traditional payments, he argues Australians should ask what underlying economic conditions are encouraging more people to rely on physical currency.

In his assessment, cash is less a symbol of nostalgia than a barometer of financial pressure.

If household finances improve, inflation eases and the illegal tobacco economy contracts, Murphy believes cash could once again resume its long-term decline as Australians return to the convenience of electronic payments.

Until then, he argues, the growing visibility of notes and coins may be telling policymakers something far more important than how Australians prefer to pay—it may be signalling the financial pressures many households and businesses continue to face.