Thomas Piketty urges Australia to introduce an inheritance tax

By Leith van Onselen

Best selling author of ‘Capital in the 21st Century’, Thomas Picketty, appeared on ABC’s Lateline last night where he urged Australia to implement an inheritance tax to help tackle income and wealth inequality:

EMMA ALBERICI: We are, in fact, if I am correct we are one of the only countries in the Western world that doesn’t have a death tax.

THOMAS PIKETTY: Right. So if you take countries like Britain or Germany or the US or France or Japan, you have inheritance tax on the very high property, very high wealth transmission around 40 – 45 per cent.

Japan just raised its top inheritance tax rate from 45 to 55 per cent last year. This was under a right wing government.

In Germany, I don’t hear Angela Merkel or I didn’t hear Cameron in Britain say that he wanted to reduce the inheritance tax of 40 per cent to the Australian level of zero per cent.

So this is very unusual, specially, I am not talking of small transmission of $100,000, but if you receive millions and millions and if people who start from zero have difficulty accessing property, what is the priority?

The priority is not to raise tax for the pleasure of raising tax. The object is to reduce the tax for others, in particular for middle wages and lower wages.

The property tax system in Australia, like in many countries, it is not I think equitable in the sense if you have a lot of debt, you try to access a property of $500,000 or $800,000 and you sometimes start with a debt which is just as big and it takes you 20, 30, 40 years to repay this debt, you are going to pay the same property tax as someone who has inherited from the property with no debt.

So this needs to be reformed so that people who are trying to access property and the bottom 50 per cent or even the bottom 90 per cent in this country has limited wealth and you want to increase wealth mobility, their ability to access wealth which means that people who are more accommodated will have to pay a bit more.

National inheritance taxes exist in many other developed countries, such as the UK, USA, Germany, Belgium, the Republic of Ireland, France, and Japan (see next chart via Fairfax).

ScreenHunter_11460 Feb. 11 08.15

Australia also used to have inheritance taxes. But in 1978, Queensland Premier Joh Bjelke-Petersen abolished the state’s inheritance tax, which was followed by the governments of other states. Prime Minister Malcolm Fraser then followed suit and eliminated the federal inheritance tax

The Henry Tax Review also gave in-principle support for an inheritance tax (called a “bequest tax” in the report), noting that it would be economically efficient and equitable. Still, it shied away from outright recommending re-introducing a bequest tax because of its controversial history:

A bequest tax would be a relatively efficient means of taxing savings. Decisions to save taken solely to fund consumption later in life would be unaffected. But decisions to save motivated by the desire to leave a bequest would be affected and this would impose some efficiency costs. In aggregate, though, bequest taxes are not likely to introduce large biases into donor behaviour. A bequest tax could increase labour supply and savings by recipients and prospective recipients, though the effects would be limited.

Such a tax could also be a progressive element of the tax and transfer system. Because the distribution of wealth in Australia is so uneven, most of the revenue available from a bequest tax could be raised from the top 10 per cent of households by wealth.

A tax on bequests would fit well with Australia’s demographic circumstances over the coming decades. Over the next 20 years, the proportion of all household wealth held by older Australians is projected to increase substantially. Large asset accumulations will be passed on to a relatively small number of recipients. On the other hand, a bequest tax would be complex. There would be a need for anti-avoidance provisions, including a tax on gifts. There would, inevitably, be significant administration and compliance costs.

A tax on bequests should not be levied at very high rates. People should not be unduly deterred from saving to leave bequests. A substantial tax-free threshold combined with a low flat rate beyond that point would be an appropriate structure for a bequest tax. Bequests to spouses should be concessionally treated.

Another design issue is whether to tax the whole of the donor’s estate or the inheritances received by individual recipients. There are arguments on either side, but on balance, they probably favour taxing each estate as a whole. A large number of other design issues would need to be considered. The more concessions and exemptions in the bequest tax, the greater its complexity and the greater the risk to efficiency and equity goals.

The Review has not sought to recommend the introduction of a bequest tax at this time, but believes that there should be full community discussion and consultation on the options.

Given the extreme pressures on the Budget as the population ages, along with the growing tax burden being placed on the diminishing pool of workers, it would seem appropriate to at least place an inheritance tax on the Budget reform agenda.

OECD countries raise on average 0.41% of total taxation revenue from inheritance taxes. Even if this low rate was replicated in Australia, it could raise around $1.6 billion of additional Budget revenue each year.

Alongside closing Australia’s inequitable and fast growing tax expenditures (concessions), and adequate taxation of land and resources, an inheritance tax would help to broaden the tax base, and remove the burden from productive effort – especially labour income – raising Australia’s growth potential.

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Comments

    • lol, you have to pay tax on everything you earn, tax on capital gains for everything you bought with post tax income………..aaaaaand when you die you have to pay tax again. Tax on the way in, tax on the way out….oh look theres nothing left but the memories of all those publicly funded junkets to Bora Bora, Maldives and Belize.

      What a load of communist drivel, F off back to Stalingrad you tard. Taxing every bloody thing you can think of won’t fix the budget because the government will just come up with new and more corrupt ways of pissing it up the wall.

      • Neville Gearless

        Martial, we need a reverse communist tax to fix a communist tax break in the first place, namely NG and CGT discount. With out the latter there would be no need for the former.

      • yes its a disgusting immoral idea. Govt allows corporates, multinationals to escape taxes, huge taxes if they were paying their way and Turnbull has his wealth in the Caymans, Gina pays buggerall taxes… NO. No if it comes in I will set up Caymans island way to avoid it so will as many as can. Turnbull already has his set up. Picketty is a dishonourable man to the core. Not independent.

        Incompetent govt looking to steal from its people.
        Corrupt. Like Henry the 8th setting up Cof E as the parliament didn’t give him a enough money for his pustulus excesses so he devised to steal from the Catholics and thence to steal form and suck the blood out of Ireland for centuries, as well as sell them as slaves to illiterate americans.

    • Neville Gearless

      Yes, yes, yes. lol
      Jeeze 3d, why are you right wingers so economically illiterate?
      Imagine the economic benefits when speculator acquired estates are broken up and housing sold back to their tenants. Of course no need to imagine, its happened several times in history in various countries around the world.

    • Agreed XO! No, no, no! (on the proviso they fix the tax system as stated on this site countless times before)

  1. Inheritance taxes are a doddle to avoid for the rich.

    Set up a trust. Change the Trustee. Done.

    I’d rather a land tax to be completely honest.

    • Many ways to fix.
      Change tax law so that trusts are deemed to die every year and hence inheritance tax is payable yearly. That would do it.
      Trusts controlled by politicians would be exempt of course. That might get it passed.

      • That’s why people set up corporate trustees. Death of a trustee is annoying enough by itself. All those problem goes away when the trustee is an entity that can’t die.

    • naturaltrustMEMBER

      Yes: Two disgusting taxes. Agreed. Land Tax is marginally better in some ways. It’s like a choice between dying by guillotine or hanging.

  2. How does this tax system stop people from just giving 90% of their money to their kids in the years before death?

  3. myne is correct and so is Lama. Giving half of what you have built to the government upon dying just to level the playing field is so very wrong. Fix negative gearing, immigration, inefficient existing taxes (stamp duty), FIRB rules and policing and you will have all but eliminated the issues around affordability. Taxing a lifetime of hardwork and going without to give your kids a chance at a better life than they otherwise may not have is not something to be applauded. Rather it is a great step backwards with the aim of avoiding the hard choices.

    • Giving half of what you have built to the government
      That does seem unfair. We should exempt anything that a person has built. Tax all the land and natural resources that the person did not build, but exempt anything they actually built. So a typical dwelling would be taxed on land and raw material value, but not on construction cost.
      Similarly a company could be taxed. The land and govt licenses owned by the company would be inheritance taxed, but the actual goodwill built by the owner would not be taxed.

    • Neville Gearless

      Partly agree with what you’re saying. But this provision ought be be adopted purely to reverse the land acquisitions going on around here, which has been facilitated by tax concessions in the first place. Maybe exclude inheritance of businesses which are a completely different category, they are a part of the economy while the practice of land hoarding is a parasitic activity, is a brake on the economy and people’s lives. Lot of these hoarders are in positive gearing territory now and abolishing NG wouldn’t affect them. The idea is a small inheritance tax forces the inheritors to sell of property for cash. They get to keep most the cash, pay off mortgages etc, it’s not that bad. In countries that have done this, land has ended up in the hands of tenants.

    • If your kids don’t have a chance at a better life with “millions”, they probably don’t deserve it.

  4. How are we millennials meant to afford our first homes if our inheritances are taxed? It’s hard enough to pay for all these goddamn avocados and iPhones…

  5. An inheritance tax will provide income for accountants and charity workers as the children of the wealthy will suddenly and collectively find an urge to bring water to africans and fight for women’s issues – like the children of Gates, Buffet, Clinton, etc etc. All the while, the bulk of the money ends up in the Caymans or the BVI, along with Turnstyle’s.

    Taxes like these are there to be gamed; land taxes are a lot harder to game.

    • naturaltrustMEMBER

      Land Tax is an insidious tax on the poor and low income earners in particular as it is not related to income.

      • naturaltrustMEMBER

        Chriso, I am uncertain as to what you are trying to say. If you think that first home owners struggling to buy a Canberra (or any) apartment are wealthy and that they are unworthy of ownership then I cannot understand your reasoning.

        Please explain.

    • naturaltrustMEMBER

      Land Tax is a pernicious tax, Tony.

      Land Tax is a great way to give governments access to more of your money. Look at how the tax keeps rising in Canberra and residents get to give more and more of their money to the ACT government.

      Also, all Australians, like David Collyer and Leith van Olenson, who like to live in houses of ever decreasing sizes can enjoy a Land Tax which induces developers and buyers to race towards smaller and smaller allotments to save paying higher Land Taxes.

      As farmers go out of business because they cannot afford to pay the high Land Taxes on their farms all Australians who like to eat healthy fresh farm grown food will pay more for their food.

      Google and other similar businesses that use small office space for highly profitable businesses will thrive because they will pay proportionately less Land Tax than, say farmers due to their lesser need for Land.

      What sort of society will Land Tax produce in Australia. Certainly not a healthy one!

      • The ACT seems to be doing fine and they just voted their Government back in.

        I hope your not a smoker NT becauae it would be dangerous with all those straw men you carry around.

      • naturaltrustMEMBER

        Dear footsore, The ACT government was re-elected because it is the better of two bads. Note that the other bad is very, very bad.

        As for your slurring commentary about the insidious Land Tax here are a few brief facts for you:

        “Apartment and unit rate bills will increase about 20 per cent from the 2016-17 year, an average of $230, and 15 per cent the following year, an average of $200, due to changes to the way the government calculates the land value for apartments.

        The next annual rates bill will be $2152 for a house, on average, and $1156 for a unit.

        Chief Minister Andrew Barr said it was appropriate there was “a more even balance in terms of the distribution of the rates burden”, as units and townhouses made up a significant portion of new homes built in the ACT.

        Independent Property Group project marketing director Wayne Harriden said the tax increase would spark tightening rents if investors passed on the extra cost, in part or in full, to tenants.

        “Cost certainly plays a part in a lot of investors’ decisions,” he said.

        Mr Harriden said first home buyers might be harder hit by increasing rates. (Allhomes)”

        Truth is, footsore, everyone is hit harder by increases of 15% and 20%,

      • “As farmers go out of business because they cannot afford to pay the high Land Taxes on their farms”

        Yet somehow they could afford to pay for the land (which costs FAR more than land tax and would be cheaper because of land tax) in the first place.

  6. His other point was, that if you are clever, money is easy to get your hands on
    “Since 2000, there has been nearly a 75% turnover on the AFR BRW Rich 200 . Only 1 in 7 or so of Australia’s richest 200 millionaires and billionaires got their start from inherited money.”
    6 in 7 bootstrapped.
    Where we have run aground in this nation is that the safety nets for society are being used as hammocks. Nearly whole nation has dozed off. But 6 in 7 can still do it.
    “All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake up in the day to find it was vanity, but the dreamers of the day are dangerous men, for they may act their dreams with open eyes, to make it possible.” T.E. Lawrence.

    • WW, this is gold -thanks…

      Now. I’m off for a snooze, I mean a dream, at my desk! zzzzzzzzzzzzzz

      • Mate, from Laurence of Arabia, who as you know spent much time in Aleppo, as did one of our famous commanders, Lavarack (Lavarack barracks in TVL), and one of our WA boys who was sick of the Frogs machine gunning us, charged the machine gun post, bayoneted the 4 Frogs, and won a VC.
        I am so pissed off, all that Strayan commitment is now for nought.

  7. An inheritance tax will give jobs to tax lawyers and accountants. The revenue it will raise is pretty small, and will fall mostly on people who died in accidents before they can hire the tax lawyers and accounts. The suggestion is liked by many people in principle, but in reality it does bugger all to address inequality.
    Land tax, in contrast, is much harder to escape.

  8. Yer I am afraid I am with Buzzy. The article is trying to have a bet each way saving an inheritance tax will provide a benefit for the budget and at the same time reduce the burden on working people through their working life. Convenient double counting of the benefits. I might be for a very modest inheritance tax if it actually lowers my marginal tax rate , but the reality is this will never happen. So it will be just more taxation and given the article alludes to a mere $ 1.6 billion its almost immaterial with the annual deficit running around $ 50 billion. The government needs to learn the discipline of controlling spending before it introduces yet another new tax, otherwise we would implement for no gain, it and it will be just more government waste or more bureaucrats sitting on their ass in Canberra, we have too much of that now.

      • ceteris paribusMEMBER

        Jono. The Government isn’t interested in the pennies of two-bob capitalists. Keep what you have and eat lollies and ice cream to your heart’s content. Governments will get on with health, education, infrastructure, research, environmental protection, defence, diplomacy, communication, transport and civilization in general without you.g

      • I can’t think of one government that is succesful in delivering any of those services efficiently.

        Oh well, at least we will have our utopian ideals.

      • I can’t think of one government that is succesful in delivering any of those services efficiently.

        But that’s because you live in Libertarian Opposites World where “efficient” means channelling the largest amount of wealth to the fewest number of people.

  9. Tassie TomMEMBER

    I read this story on the ABC website – it has a bit more detail there. Although I disagree with an inheritance tax, Piketty made some really good arguments. He described very clearly how capital gets off scott free, and how this has caused the situation where being born to wealthy parents is the only way forward. This is the elephant in the room which is ignored by both sides of government.

    Problems with inheritance tax:

    – corporate trusts never die (at least not for 80 years)
    – some socioeconomic groups have children younger, hence get through the generations faster and would pay inheritance tax more often.
    – high-capital family businesses (farm, factory etc) may need to be sold upon a death.
    – the healthiest grandchild may well be in the box seat to be heir.
    – would need to be coupled with a gift tax, which becomes complicated. For example – a young couple without children die in a car crash and do not have wills. The husband is older than the wife. The husband’s parents loaned them a lot of money for a house. The law says that when order of death cannot be established that the elder is said to die first. Therefore the husband’s assets (50% of their house) is transferred to his wife, which is then transferred to her NOK which is her parents. The wife’s parents want to repay the money loaned by the husband’s parents, but are hit with a hefty gift tax.

    If they start talking about a 1%pa wealth tax in exchange for income tax cuts – well that’s $60 or $80 billion pa transferred from labor tax to capital tax – I’d be right up for that.

  10. If you want a meritocracy then you need equal opportunity. If you want equal opportunity then you can’t have huge inherited wealth for some and a second class education system and educational opportunities for 2/3 of the population, who alos have to suffer all the disruption of those least suited to school.
    A progressive death duty after allowances for dependents to say 25 and for life for a surviving spouse is a very fair tax tht encourages a meritocracy.

  11. Ah yes, if only we would let the government steal just a little more bit off us (because it’s NEVER quite enough) then all our problems would be solved. I suggest 100% taxation for all- government takes everything, we keep nothing. It would be paradise here on earth. We could all work like dogs, have the parasitic pigs in government steal every cent we earn and take care of us whilst ensuring “equality” across the board.

    • Yeh, private landowning pigs have stolen most of the land, and govt has stolen the rest leaving none for me. When I try to earn money to buy some land off the private pigs, the govt pigs tax me on it. Then if I die they will steal some more.
      Better to just give me a fair share of the land and solve all the theft at one stroke.

  12. I’ve been saying for at least 15 years now that there’s an awful lotta people in this country sweating on getting their parents property when they kick the bucket. Goes a great deal towards explaining the general apathy that exists amongst Australia’s youth in regards to the growing chasm between property haves and have nots. This thread’s low comment count and the general comments posted here focusing on the unfairness to the rich and their poor little kids is further proof of that.

  13. Piketty has good intentions but, as stated multiple times above, it would just create work for accountants and lawyers. Those with money will find a way around it, even if it involves going all the way to Panama. Michael Hudson has a better idea, seperate the real economy from the rent extracting FIRE sector. Don’t take money from those who might have worked for it, go after the unearned economic rents.

  14. Only a few of the above comments deserve a Gold. Piketty is an academic a$$hole for suggesting Death Taxes BEFORE we even start taxing Multinationals -who currently get off almost Scott free! Glo above got it spot on -triple Gold!

    “—yes its a disgusting immoral idea. Govt allows corporates, multinationals to escape taxes, huge taxes if they were paying their way and Turnbull has his wealth in the Caymans, Gina pays buggerall taxes… NO. No if it comes in I will set up Caymans island way to avoid it so will as many as can. Turnbull already has his set up. Picketty is a dishonourable man to the core. Not independent.” =- – – applause !

  15. ResearchtimeMEMBER

    Your right royally screwed if your a farmer… low income, then 40% of the farm goes when you die. Forget passing it on to your kids!

    Thats why they (the rich) use trusts in the UK and US – very little gets taxed from the very wealthy. In Europe, the rich have been rich for hundreds and hundreds of years! Very little social climbing…

    Just another reason for the general population not to save. Fits the socialist stigma of this website.

  16. Accumulations of capital derived from productive effort should be encouraged.

    Accumulations from rent seeking and speculation are another kettle of fish and should be discouraged. However, there is no good reason to wait until some rat bag dies to do that.

    Taxing the dead would be of much less interest if the burden of taxation on the living was more equitable.