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Controversial $10 billion push for death tax in Australia: 'Once-in-a-generation opportunity'
The Australian government could soon tax your inheritance if a think tank's proposal is adopted. The Australia Institute put forward three concepts to help the country rake in more revenue without impacting low-to-middle income residents.
One of those suggestions involves the reintroduction of an inheritance tax, with the think tank estimating it could generate $10 billion per year. Matt Grudnoff, Australia Institute senior economist, told Yahoo Finance it might not be popular for some, but it could go a long way in paying for essential services.
"Inheritance tax is a once-in-a-generation opportunity... and it can be quite a large revenue source," he said.
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Australians have endured inheritance taxes in the past, which have also been called death duties.
Federal and state levies were imposed on recipients in the wake of someone's death; however, these were abolished in the late '70s and early '80s.
Capital Gains Tax (CGT) was introduced in the mid-'80s as a way of taxing certain assets, but that only applies if that asset grew in value after being given to the recipient.
Fast-forward to now, and the Australia Institute believes it's time to bring back a tax on inheritance, but only for the super wealthy.
It hopes the idea will be discussed at the government's economic roundtable this week.
The pitch comes ahead of a projected $3.5 trillion wealth transfer over the coming years as Baby Boomers and the Silent Generation offload their assets to younger would a 2025 inheritance tax work?
The think tank didn't propose what that tax rate would be, but Grudnoff said it would apply to the top 5 per cent of people across the country, or those with $5 million to $10 million worth of inheritance to offload.
As for the $10 billion per year projection, that was based on how much the tax brought in for Australia's GDP when it was at its peak and adjusted for current economic conditions.
The tax would apply to inheritances given after someone had died, as well as if it was gifted before they passed, which has become a popular trend to help young people get onto the property market.
"I understand that it's controversial in the media, in the general public, and amongst politicians, but if you talk to economists, they agree that inheritance taxes are a good form of tax," Grudnoff told Yahoo Finance.
"Australia is really bad at taxing wealth. We tax it really lightly, and that has consequences that either mean that you have to have fewer services, or you need to tax other areas more heavily."
While some might kick back against the idea of introducing more taxes, the economist introducing something like this would make Australia have more of a "European-style" economy, where people are "looked after and they do get better services".
The Australia Institute said the money could be used to fund schools and hospitals, more affordable housing, create a better NDIS, and a fairer welfare system.
Countries all across the globe, including Belgium, Brazil, Italy, Turkey, and the US have different forms of inheritance tax.
Some have tax-free thresholds, and then the rate goes up in increments depending on how much is given, while other nations have different rates depending on your association with the deceased.
Two other ways to raise $60 billion per year
The Australia Institute had two other concepts that, if approved, could bring in a whopping $60 billion per year to the country's coffers.
One suggestion was a 2 per cent wealth tax that would be applied to people worth more than $5 million.
Their family home and superannuation would be exempt from this tax, but everything else would be affected.
This alone could bring in $41 billion each year.
The other idea was scrapping the CGT discount, which would raise $19 billion per year.
When you sell or get rid of an asset, you can reduce that capital gain by half if you owned it for at least 12 months and are an Aussie resident.
"If you earn income as a wage, you get taxed at your marginal rate," Grudnoff said.
"If you earn income from interest or dividends or any form of income, you're taxed at your marginal rate.
"The only exception to that is capital gains, where you're given half of it for free. We're proposing that capital gains be treated like all other forms of income and be taxed at the full amount."
Combining all three ideas would see $70 billion raised, mainly from high-income earners and those with extreme in to access your portfolio
