Doesn't this just give the tax man a bigger cut of every transaction at woolworths?
Perhaps, but seems silly to give someone a $2 "reward," while adding $2 to their price. Then again, it may be brilliant if their customers don't notice and end up spending more to get these rewards.
I assume the $2 "reward" you get can only be spent at woolworths, so they are effectively just forcing you to continue spending money there. It just seems like the tax man is going to be taking the same percentage even though you upped the price, so you pay more in taxes. Then you come back to spend your "reward" at woolworths and the tax man takes the same percentage from an inflated price.
Taken to the logical extreme they would up the price from $40 to $1,040. Now you get charged taxes on a $1,040 item instead of a $40 item, AND you have to come back to spend your $1000 "reward" (and also get charged tax on that purchase).
EDIT: So wouldn't you just be better off foregoing the inflated $42 price and just pay the $40? The $2 you save (even more because you pay less taxes on a $40 item) can then be used to purchase more goods at woolworths if you want, but it can also be used for anything that money can.