Australians could soon be grappling with the possibility of taxes on inheritances after incoming Productivity Commission Chair Danielle Wood said there was “simply no policy justification” for how little tax retirees allegedly pay.
The Labor government-chosen Ms. Wood said a “sensible conversation” was needed after the Productivity Commission estimated that Australian baby boomers (people born between 1946 to 1964) would pass on over $220 billion in inheritance annually before 2050.
In a move supposed to deal with intergenerational inequity, Ms. Wood recommended a reduction to the 50 percent capital gains tax discount for retirees and for retirees to pay a 15 percent tax on their superannuation earnings during a speech to the Economic Society of Australia on Aug. 30
Former Liberal Prime Minister Malcolm Fraser abolished Australia’s wealth tax in 1979; however, Ms. Woods claimed that currently, retirees pay “ridiculously low levels of tax” and “should pay more on their superannuation.”
“At a minimum, we should not be subsidising inheritances via some of the existing rules that allow the accumulated value of super tax breaks to be inherited by the next generation, as well as the exclusion of virtually all the value of the family home from the age pension asset test,” she said.
Currently, an Australian family home is not counted as an asset when calculating pension payments.
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The Australia Institute’s senior economist Matt Grudnoff said Australia is “the only developed country in the world” that doesn’t have an inheritance tax, and introducing one would be “fair” and “useful” in broadening the tax base.
“The important thing here is not everyone pays an inheritance tax, so the vast majority of people wouldn’t pay it, but those with extensive estates would pay some tax on that,” he said.
When asked if the estates would include the family home, superannuation, and similar inclusions, Mr. Grudnoff said, “It certainly could be, but Australians could have assets excluded from it, and the tax rate would need to be negotiated.”
He said any inheritance over $5 million could be taxed “anywhere between 20 to 40 percent.”
“We all want better healthcare, we all want better-aged care, there are all sorts of services the government provides that we value and we think are important, and this is one way of raising revenue to fund those.”
However, the Albanese Labor government is not considering an inheritance tax with Treasurer Jim Chalmers ruling out such a radical move.
“I haven’t agreed with everything that she’s said in the past; I wouldn’t anticipate I agree with absolutely everything she says in the future,” he said.
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One Nation Party leader Pauline Hanson said Ms. Wood’s inheritance tax proposal was based on her limited “age and experience” and would “not help the Australian people struggling through the cost of living.”
“Forty-four percent of homes built are taxed, Australians are taxed left, right, and centre, and then in death, they [the government] want to tax you again. I think it’s so wrong,” Ms. Hanson told 2GB radio.
“Increased tax [on superannuation] to 15 percent again hurts the Australian people because this money goes to the state, which wastes money. Australians get nothing for it because the government can’t control their spending, but they expect people always to pay more taxes.”
Ms. Woods claimed a 15 percent tax for retirees would add $5.3 billion annually to the budget.
“This would re-establish the pre-Howard government principle that income tax contribution should be based on income, rather than age,” she said.
“Crucially, it would represent a de-escalation of policy decisions that cumulatively ask working Australians to underwrite much larger transfers to older Australians than any previous generation has supported,” she added.