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Could the political tide be turning on inheritance tax?

By John Buckley
 — 1 minute read

It’s traditionally been a politically unpopular move, but new research has indicated the majority of Australians are in favour of reintroducing taxes on the estates of the wealthy as a way to address the rising costs of an ageing population.

The University of South Australia (UniSA) released new research last week that shows that public resistance to inheritance and estate taxes may have declined in the 40 years since they were abolished.

Dr Veronica Coram, a social policy expert at UniSA, said the decline in the bequest motive offers the nation a material opportunity for significant Australian tax reform – as well as the chance to address the social inequalities that often accompany wealth transfer.

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“There’s nothing more certain than death and taxes. But while people generally assume the combination is notoriously unpopular, our research suggests otherwise,” Dr Coram said.

“We talked to young adults and senior Australians and two thirds of them thought Australia should consider reintroducing taxes on estates worth more than $3 million, while only one in 10 were definitely opposed.”

Dr Coram said the faltering interest emerges as an opportunity for Australian tax reform, and to address the mounting wealth that often trickles down to those who mightn’t need an inheritance.

“The lack of interest in giving or receiving inheritances meant that most participants saw no reason to object to estates being taxed, which opens potential opportunities for much-needed tax reform,” Dr Coram said.

“Inheritances generally go to people who are already well-off and don’t need them; they encourage inequality and inhibit social mobility.”

State leaders each abolished the inheritance tax in 1979, in a move led by National Party Queensland premier, Joh Bjelke-Petersen. Then-prime minister, Malcolm Fraser, followed suit shortly thereafter and abolished the tax at a federal level, in what was perceived as a move to strengthen his electoral popularity.

The 2009 Henry Tax Review examined the issue in detail, and considered an inheritance tax as a “relatively efficient means of taxing savings”.

It suggested that the tax could be a progressive element of the tax and transfer system, with most of the revenue to be raised from the top 10 per cent of households by wealth, but stopped short of recommending the reintroduction of an inheritance tax.

Dr Coram believes the tax could not only help close the gap on inequality, but also raise revenue and close a forecasted federal budget deficit of $106 billion for the 2021-22 year, and one as big as $1 trillion in 2025.

“The Australian government needs to find ways to raise revenue to support increased spending demands generated by COVID-19, an ageing population, pressure on health systems and increasing environmental disasters,” Dr Coram said.

“Reintroducing inheritance or estate taxation is a way of increasing government revenue, while reducing a key driver of inequality at the same time.”

Dr Coram said politicians should feel reassured by shifting sentiment around the tax both in Australia and other OECD countries. She said society is less resistant to inheritance tax as it once may have been.

“Historically, inheritance taxes have been considered ‘political suicide’,” Dr Coram said. “But perhaps their time has come, ironically due to a growing individualism and associated decline in the assumption that family members should provide for one another.

“More research on changing views towards redistributive policy is required, but the results of our study suggest that if governments are considering tax reform, they should not assume that Australians are vehemently opposed to wealth transfer taxation.”

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Could the political tide be turning on inheritance tax?
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