There aren’t many things more certain in life than death and taxes. It might be an old cliché, but it’s becoming an increasingly appropriate one.
Now that Turnbull has put paid to any GST reform proposals, attention turns elsewhere. A GST hike would’ve been a good way to smash the budget deficit. But the government got cold feet, fearing a voter backlash. So with that idea in the dustbin, the government will have to look at other means to raise revenues.
With an election on the line, the government is likely to place emphasis on any tax reform that affects the smallest percentage of the population possible. And, as day follows night, you can expect the onus will be back on Australia’s rich to bail the government out again.
Tim Costello, from the Community Council for Australia, has suggested introducing a so-called ‘death tax’. Essentially, this death tax is no different to an inheritance tax. It’d take in extra revenue from wealthier Aussies who leave large estates and assets to their children.
To be honest, I assumed we already had an inheritance tax in Australia. That it was stock standard here, as it is elsewhere in the world. Well, that’s not the case for now, but it could be soon enough.
What a levy on death means for tax payers
Early estimates suggest some 100,000 Australian’s would face most of the brunt from an inheritance tax. These are individuals with over $5 million in net wealth. Of that figure, some 25,000 have $10 million in assets.
According to Costello, you’d need 4% of them to pay 35% in estate duties to raise upwards of $5 billion in revenue. That wouldn’t necessarily make a huge dent in the deficit, but it’d be a step in the right direction.
Looking at the economics of it, you’d expect the government will give serious consideration to a death tax. Levies on inheritance are commonplace right around the world. True, they vary in how they tax individuals. But the idea is broadly the same everywhere you go.
In Japan for example, the death tax is at the extreme end of the scale, at a rate of 55%. In France, it’s 45%. Even the UK and United States both have rates set at 40%.
Chile, a country that’s nowhere near as affluent as Australia, imposes a 25% death tax. Under Costello’s proposal, Australia would fall somewhere in line with Spain, which imposes a 35% tax on inheritance.
Of course, every country varies in what thresholds their rates apply for. In the UK, the threshold for the death tax is set at $665,000. On top of this, there are difference in where this taxable revenue is allocated. Certain nations apply discounts for individuals that donate to charity. And that could be something the government looks at here in Australia too.
Ultimately, the idea behind the inheritance tax is simple enough to understand. The wealthy have a lot of money. The government always like more money. And the fewer people they can tax (but still maximise revenues), the better it is for the government. Policymakers have always operated in this manner, and that’ll never change.
Yet it’s not just Australian think tanks that have raised the prospect of a death tax. It’s an idea that international bodies are pushing Australia to pursue. We’ve received recent support from the OECD, a club of rich member nations. The OECD is urging Australia to adopt a death tax that falls in line with other nations.
In saying that, the OECD did warn that individuals would find ways to work around a death tax. What it might lead to is a rise in the number of wealth transfers prior to an individual’s death. But that’s to be expected. People always try to minimise the impact of any kind of tax if they can. Neither surprising, nor unexpected.
But is that enough reason not to enforce a death tax? Mr Costello doesn’t think so, and I’m inclined to agree. As he points out, people would try and dodge it, but that’s no reason not to introduce it. And he’s right.
However, politically motivated discriminatory taxes are unfair. And they only add to the swathe of taxes that already squeeze pennies out of the public. A levy on death would be yet another tax in a system of endless burdens placed on taxpayers.
Moreover, it’s a tax that only targets the rich. That’s a prickly issue for many, not least because it’s seen as an attack on the wealthy themselves. The reason why GST reform seemed like such a good idea was because it applied to everyone. It didn’t discriminate based on socio economic standards.
But we now know why there’s little political will for a GST tax rise. Since it hits the poorest hard, the government felt it had no choice but to drop it. That’s understandable, and even commendable. But it doesn’t make an attack on Australia’s wealthy any less excusable. It’s a case of the government doing what it does best — taking from the people.
This death tax would apply to less than 1% of Australians, leaving the other 99% alone. Maybe that’s fair, or maybe it isn’t. It’s not for me to decide.
Junior Analyst, Markets and Money
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