Assistant Treasurer Daniel Mulino has conceded the government knew the Australian Taxation Office (ATO) was considering banning credit card payments in July, months before the decision was made public.
The ATO's decision in late September to stop accepting credit card payments from December 1 sparked backlash from the business community, which eventually forced an intervention from the prime minister and the treasurer to underwrite the costs and allow credit cards to be accepted by the tax office until mid-2027.
Mr Mulino today said he and Treasurer Jim Chalmers were first made aware of the ATO's intentions months ago.
"In July, the government became aware that the ATO was looking at options and that at that point their preference was to not accept credit cards," Mr Mulino told ABC's Insiders.
"The indication we gave to the ATO was that they should continue to engage with the credit card companies, and that there should be a transition period."
The admission comes after the Australian Financial Review yesterday revealed the ATO had privately informed the government about its credit card ban and presented the government with options.
The ATO's decision followed changes from the Reserve Bank of Australia to scrap card surcharges from October 1, which the bank has said was "in the public interest" and was costing consumers about $1.6 billion a year.
Mr Mulino was asked why the government did not push for the ATO to continue accepting credit card payments from small businesses back in July.
"So, accepting credit card payments going on indefinitely, would have very serious fiscal ramifications for the budget, and that's why we always said that there should be a transition period," he said.
He said the government intervened "very quickly" after the negative fallout and insisted the government was listening.
"We stepped in very quickly once the feedback came to us," he said.
Small businesses were informed of the ATO's decision on September 30, a day before it was made public, and given a two-month grace period.
"But the transition period, as it turned out, from stakeholder feedback, wasn't enough. And so that's where the government stepped in," Mr Mulino said.
Earlier this month, Mr Chalmers said he was aware the ATO was "grappling" with the decision before it finalised the decision in late September, but he was not aware of the specific timeline.
Mr Mulino said he engaged with government agencies shortly after the RBA's announcement in March saying they were expected to comply with the removal of surcharges.
The ATO initially defended its decision, saying it was not tenable for the agency to absorb the $200 million cost and that it would result in less revenue being collected and therefore less funding for government services.
Taxation commissioner Rob Heferen said the ATO "would have preferred to continue accepting credit cards" but that credit card companies did not offer a low enough rate.