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Australia is in the minority of major economies that don’t tax wealth people receive from others who have died, but some not-for-profits argue it’s time the government considered doing it.
An inheritance tax would “provide a fairer system of wealth distribution, preventing undue concentrations of wealth within a limited segment of society”, Anglicare Australia has argued in a new report.
Separately, think tank Think Forward, which advocates for intergenerational fairness, has called this week for politicians to “tax wealth, not work” in order for young people to get fairer access to opportunities.
Australia used to have state and federal inheritance taxes but they were abolished in the late 1970s as they were seen as unpopular with voters.
Australia’s major wealth transfer
Griffith University researchers Australians are set to inherit an estimated $3.5 trillion over the next 20 years, in the greatest wealth transfer in the nation’s history.
On average, each recipient is expected to inherit around $320,000.
Australia’s four million baby boomers, generally considered to be those born between 1946 and 1964, are estimated to hold around $4.9 trillion in wealth, according to an analysis by market research company CoreData.
Anglicare’s report states that Australia’s tax system has created a “deepening economic divide between asset-rich households and those who must rely solely on wages”.
Australia has become an outlier amongst its fellow OECD countries, Anglicare’s report argues. Of the 38 OECD countries, 24 have inheritance or estate taxes.
In 2020, inheritance and estate taxes accounted for approximately 1.5 per cent of GDP in France, 0.9 per cent in Belgium, and 0.7 per cent in Germany.
Critics have argued that taxing inheritances amounts to double taxation, as assets have often already been subject to income or capital gains taxes.
Anglicare’s report presents several models of taxation, including an estate tax that applies only to high-value inheritances.
Under this model, estates valued over $2 million would be subject to taxation, protecting smaller inheritances. This is a much higher threshold than the UK’s inheritance tax, which is charged at 40 per cent on the property, possessions and money of somebody who has died, above a £325,000 ($644,000) threshold.
Another model would be to introduce broader capital gains taxation, particularly by addressing unrealised gains on inherited assets, according to the Anglicare report.
Anglicare CEO Kasy Chambers has also called for a tax on high superannuation balances that are passed on to relatives tax-free.
“Superannuation is supposed to be about funding retirement,” she said.
“The government must restore the purpose of superannuation, and stop the system from becoming another way for wealthy people to build wealth and pass it on without paying their fair share.”
People who draw incomes from capital gains, property investments, and inheritances face significantly lower effective tax rates compared to income tax rates, “further entrenching wealth disparities”, the Anglicare report states.
Younger workers disadvantaged
Tax concessions are likely to become a hotly debated topic ahead of this year’s federal election.
Noting that nearly 50 per cent of voters will be millennials and gen Zs, Think Forward CEO Thomas Walker says millionaires are “rewarded over a young person starting out in life”.
“We must end the handouts that see older affluent people build ever greater wealth, denying younger generations their own opportunity to build economic security,” he said.
“Younger Australians feel like the prosperity ladder has been pulled up ahead of them. Our leaders must lower it back down.”
