Death tax? Property tax? Four ideas that could offset inheritance inequality in Australia
The $5,4tn intergenerational wealth transfer predicted to occur within the next two decades is a major challenge for Australian governments,Economists have warned it could entrench and exacerbate inequality, and make the economy less productive,So what can be done about it?“In the end, that comes down to tax,” says the former deputy reserve bank governor Guy Debelle,“Taxation is how you redistribute.
Basically, that’s it,So what’s the tax?”The Australian taxation system has traditionally been progressive and oriented towards income tax but, as more people hold greater volumes of wealth or get income from assets rather than labour, says Debelle: “We have to think about what’s the sort of spending we want the government to be doing and then how are we going to fund that?“How do you want to think about that?”Economists and academics speaking to Guardian Australia offered different interventions that might do for wealth what income tax does, in some ways, for income: try to limit the worst excesses of inequality,Prof Daniel Halliday, political philosopher, University of Melbourne: “A simple approach is for inherited wealth to be included in the taxable income of the recipient,So, how much inheritance tax you pay depends on how much money you’re earning already, subject to whatever rules we already have in the tax code for adjusting one’s taxable income,“Inheritance means that wealth inequalities get more easily replicated from one generation to the next.
Inheritance allows wealthy families to keep their wealth so that it just keeps growing.If an inheritance tax could be accompanied by a reduction in income tax, higher education debt, or other taxes paid by poorer people, then we might see the most reduction in wealth inequality.“The taxing of inheritance needn’t be seen as an exclusively leftwing idea.Unlike the income tax and GST, inheritance tax would not attach to a market exchange.Whereas taxing income and consumption puts a brake on economic exchange, inheritance tax doesn’t, because inheritance happens outside markets.
So an inheritance tax should appeal also to people who think taxes are a problem when they restrict market freedoms, as well as people who value equality.”Prof Peter Siminski, applied microeconomist, University of Technology Sydney: “I think consideration of death taxes is always worthwhile.”Associate Prof Bruce Bradbury, Social Policy Research Centre, University of New South Wales: “In many other rich countries, government-provided age pensions are more generous.“If you’re a middle-class person in a northern European country, you can expect quite a generous pension in retirement based on your lifetime contributions.But that’s not something you can pass on to your children, and so it doesn’t count in wealth statistics.
“Our superannuation system has some advantages – such as incentives for people to work and save – but it does have the big disadvantage that people just end up with this lump of wealth in retirement, much of which just ends up being passed on to middle-aged children.“One possible solution would be to try to move towards a pension-type system.For example, put more effort into developing annuity systems that people could buy some security in old age.Also perhaps reforming the provision of nursing and home care in old age, so the people can be certain that they’ll get the services they need in old age without having to put money aside that they might not need.”Dr Ken Henry, former secretary of the federal Treasury: “Today it’s simply laughable to claim that superannuation is all about retirement incomes.
“We have to address the way that the superannuation system operates.We do.There is going to have to be a legislative cap on superannuation account balances that qualify for generous tax treatment.Whether that’s the right cap or not is a question for debate, but I don’t think we can argue that we should allow any amount of money to be accumulated in a tax preferred savings vehicle just because it’s a superannuation account.”Siminski: “We almost pretend that we have a progressive taxation system while we exempt things such as superannuation wealth to very high levels from being taxed fairly.
”Henry: “We are going to have to do something about the way in which property is taxed,Whether it’s dealing specifically with negative gearing, dealing with the size of the capital gains tax discount or more broadly redesigning the way that property is taxed to remove stamp duty and replace it with an annual property tax (such as the New South Wales government tried to do some time ago, which the ACT government is doing),All those elements of property taxation should be on the table,We’ve got to think this through,”Siminksi: “During the productivity roundtable last year, myself and Roger Wilkins put out a piece saying that if you want bold ideas, then let’s consider taxing the family home.
The amount of hate mail and pushback that we got on that was incredible.“Everyone knows that this is one of the biggest sources of this whole issue of inequality and mobility.It’s the [family] house that is completely untaxed in any way, well, except for stamp duty and local government taxes, but that is comparatively trivial.So it’s one of the reasons I think why … that it has become urgent is that everyone’s too scared to go there.“We just need to at least acknowledge that housing should be at least considered to be on the table.
“This is the irony, isn’t it? This protection of housing from [tax by] the government actually makes it unaffordable for some people to get in.So it becomes a welfare state for those who already have housing.”
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