Benjamin Clark: “Australia used to tackle intergenerational inequality via state and federal estate taxes. They once accounted for around 10% of state government tax revenue. But relentless campaigning by farmers and small businesses saw Bjelke-Petersen’s Queensland government axe theirs. The other states followed in fear of a retiree exodus, filling the revenue hole with pokie machines. Fraser joined in by abolishing the federal tax in 1979. It’s often claimed we can’t bring them back, or make bequests subject to capital gains tax, because it would be political suicide. … What imperilled Australia’s previous estate taxes was perceived low thresholds and the ease with which families with good accountants could dodge them. They also often applied to one’s spouse, handing opponents the potent political weapon of grieving widows. Targeting very wealthy households only, encompassing large gifts before death, and exempting spouses would help neutralise these lines of attack. The Australia Institute’s 2016 proposal is a sensible one — they’d exempt everything up to $2 million, tax fortunes between $2-10 million at 20%, and above $10 million at 30%, which would generate approximately $5 billion revenue per year. Advancing such a proposal would be an uphill battle against entrenched interests. But it’s past time we tried to bring ‘death taxes’ back from the grave.” Doing it at the federal level would also help avoid a race to the bottom.
1 December 2021