Australia, sorry, but we need to talk about inheritance tax

If mom and dad’s bank could issue stock, that would be a hot property – because business would be booming.

Last week, the australian published To analyse showing that inheritances will increase dramatically in the 2030s to 40s with the death of baby boomers, peaking in 2041. Deputy Governor of the Reserve Bank of Australia Luci Ellis Okay that the predominant means for young people to find housing will soon be parental assistance.

This follows increasing blanket of the glut of future inheritances. Much of it is based on unpublished research by so-called ‘money expert’ Vanessa Stoykov, who found that nearly two in three Australians over the age of 60 plan to leave a legacy for their children (although the amount is uncertain), and one in four Australians. are banking on a legacy to offer themselves “a better future”.

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Yet this growing discussion leaves out crucial details that frame the next ‘wealth tsunami’ as minus one. self-help solution than a social problem, and less a remedy for intergenerational inequalities than a driving force. Folkloric references to thrifty “moms and dads” who look after their children risk normalizing a “heritage”the Jane Austen company might recognize“.

Most gifts range from wealthy great-grandparents to wealthy grandparents

First, many commentators failed to mention the elephant in the room – inequality. Stoykov notes that “a whole generation of Australians is on the verge of inheriting an average of $ 320,000 each.”

But most people will not inherit as much, as the average is increased by the richest 10% who own almost half of all the wealth in Australia. The Grattan Institute find the average inheritance of the richest 20% is more than three times that of the poorest 20%.

Second, the inheritance is often presented as benefiting “young people”. Stoykov suggests that one of the main concerns is that young people are wasting money, while others suggest that they could start voting with their future inheritances in mind.

However, the Grattan Institute find most of the heirs are themselves over 50, due to our aging population. And most young voters seem to know it; more vote systematically for Labor and the Greens, especially in 2019, despite their redistributive tax policies.

Young people are more likely to receive gifts than heirlooms. However, the gifts remain much smaller – $ 1,000 on average. That could change, as soaring house prices push well-to-do parents to cough sooner. But as the wealth of most lower-middle-class baby boomers is tied to housing, and reverse mortgages remain underutilized, life events like downsizing or death will continue to dictate a flow of housing. assets modest and sclerotic for the most part.

As Danielle Wood de Grattan writing, “The growing wealth of the baby boomers will likely end up being concentrated in the hands of a select group of relatively well-off Xers and millennials” – of whom the latter will be in your sixties when the inherited cash arrives in their bank accounts.

Inheritance taxes are a political non-starter… or are they?

Australia used to tackle intergenerational inequality through state and federal property taxes. They used to represent around 10% of state government tax revenue.

Corn relentless campaign by farmers and small businesses have seen Bjelke-Petersen’s Queensland government cut theirs. Other states followed for fear of an exodus of retirees, filling the income gap with slot machines. Fraser joined in by abolishing federal taxes in 1979.

It is often argued that we cannot bring them back, or make bequests subject to capital gains tax, because that would be political suicide.

Such proposals would certainly face political challenges – after a conspiracy theory that the Labor Party would introduce a “death tax” raised alarm bells in 2019, one can only imagine the director’s glee at the ad attack in the face of reality.

Corn recent research from the University of South Australia shows that their unpopularity may be overestimated. The majority of study participants “were of the opinion that people should spend their money with abandon, and if there was any left over after they died, there would be no harm in doing if the tax office took a cut. “. A limited sample size means more research is needed. However, this aligns with other findings that family heirlooms have become less central to people’s identities, so the tax debate may be less emotionally charged.

Meanwhile, a host of establishment voices, including the OECD and the Tax institute, called on Australia to join the vast majority of developed countries in imposing an inheritance tax. The New Zealand government commissioned research into the fortunes of wealthy people, who were interpreted by some as the first steps towards a new tax system.

And the problem is only getting worse. Our pension system was put in place to provide retirees with a living, but many retirees are now net savers. Overly generous tax breaks for retirement pensions allow them to earn more untaxed capital gains than they spend, which, despite the apparent ambivalence of bequeathing, usually falls on their children by default.

Start at the top

What put Australia’s past property taxes in jeopardy was the low perceived thresholds and the ease with which families with good accountants could dodge them. They also often applied to her spouse, offering opponents the powerful political weapon of grieving widows.

Targeting only very wealthy households, including large pre-death donations and exempting spouses would help neutralize these lines of attack. The Australia Institute’s 2016 proposal makes sense: they would exempt everything up to $ 2 million, tax fortunes between $ 2 million and $ 10 million at 20%, and over $ 10 million at 30%, which would generate about $ 5 billion in revenue per year.

Pushing forward such a proposal would be an uphill battle against well-established interests. But it is high time we tried to get the “death taxes” out of the grave.

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Pierre Fray

Pierre Fray
Editor-in-chief of Crykey

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