Any suggestion of a death tax attracts vicious scare campaigns in Australia. This meme was circulated during the 2019 federal election campaign. Photo: Facebook.
The Australia Institute (TAI) has proposed bringing back inheritance tax, leading to a predictable outcry on social media among people who’d probably never have to pay it.
TAI economist Matt Grudnoff says imposing a levy on the transfer of assets of someone who dies to their family is a fair, efficient and sensible means of raising revenue to support our ageing population.
But if the Albanese government tried to introduce it, they’d be hit with a vicious scare campaign by those who portray it as sinister and creepy by calling it a ‘death tax’.
The most effective way to make it politically palatable would be to accompany any new wealth transfer levy with an immediate reduction in income tax. That would give people a simple equation – would you rather be taxed when you’re alive or when you’re six feet under?
I know which I’d prefer.
Australians once had to pay both state and federal inheritance levies. Former Queensland premier Sir Joh Bjelke-Petersen abolished death duties in 1978 to attract older retirees to his state. This led other states and the Fraser government to follow suit.
Since then, it’s been a taboo topic in this country, even though it’s commonplace in most other developed nations.
For some reason, Australians seem to think it’s fine for government to siphon a third of the wages off a cleaner earning $60,000 a year, but we’re outraged at the idea of a wealthy adult son losing a cent of their $100 million inheritance.
Mr Grudnoff wants to bring back a death duty, arguing it’s a rare tax that raises revenue without discouraging productivity, while also reducing intergenerational inequality.
Another critical point to note is that most families would never have to pay it. TAI proposes imposing the levy only on those who have $5 million or more in inheritance.
Like reducing superannuation tax concessions for balances over $3 million, there’ll be a lot of fuss and misinformation to disguise the fact that it only impacts a tiny proportion of the population. Nobody will be forced to sell their house to pay the ATO when their mum dies of cancer.
But it’s the principle, opponents will yell, arguing any form of a death levy is a ‘double tax’. Retirees have already paid tax on the wealth they accumulated, so why should their children also have to give more to the government when they inherit it?
I would argue that everyone coughs up so-called double tax all through their lives. I get taxed on my income, then taxed again when I spend that taxed income (via the GST). I even get taxed on the minuscule interest I earn if I keep my already taxed income in a savings account.
Moreover, much of the wealth grown within superannuation funds is subject to minimal tax in Australia – it could be argued that ordinary workers are subsidising the inheritance received by the rich.
Critics also argue that the wealthy would come up with elaborate ways to avoid paying any death duty, through trusts and gifts to their children in their final years. But the rich are skilled at avoiding any form of tax. A death is harder to hide than assets and tougher to postpone than profits. The best way to tackle avoidance is by closing loopholes; it’s not an argument against having a particular tax. TAI suggests a gift tax would be needed to counter death duty dodging.
It’s true that Australians hate taxes and are revolted by any talk of introducing new ones. But they also love having a big public sector, strong safety net, public transport, free education, Medicare and other subsidised services.
Like it or not, intergenerational reports warn our tax base needs to expand to pay for the rising disability and caring needs of our ageing population.
Compared to other developed nations, Australia heavily taxes income and tends to under-tax things such as property, land and wealth.
Ordinary wage earners are carrying the can for the nation at a time when they are raising their own families and paying rent or a mortgage.
That’s why an income tax cut would make a perfect sweetener to encourage people to accept the return of a death duty. It would also encourage workforce participation as we struggle to support a growing number of retirees.
The government could even put it to the vote at the next election. Do you want to pay more now, when you’re struggling with rising power bills and housing costs? Or shall we wait until you are resting in eternity before we reach into your wallet? For most, the choice would be simple.
