The front page of the Australian is highlighting that the Labor party is starting to make inequality an issue for the next election, and Leith ran a post yesterday about the Labor party and a possible inheritance tax for next year.
I find the whole inheritance tax debate fascinating. In my experience Australian’s have 3 main irrational beliefs:
- The price of residential property shall increase every year and never fall
- Franking credits are more valuable than cash dividends
- “Death taxes” are a terrible form of taxation
I won’t bother discussing residential property as it has been done exhaustively on the MB site.
On franking credits, as a young analyst in the 1990s I remember trying to convince a retail stockbroker to buy a security for his clients that had an unfranked yield of 9% vs another security (from the same company) with a 5% yield. I think the conversation went:
Me: Security B is the same security as Security A over the same company but you get almost twice the yield
Retail broker: But Security A is franked
Me: It doesn’t matter – regardless of your tax rate you will get more from Security B
Retail broker: You don’t understand. If I buy Security A my clients will get money back at tax time. Security A is franked.
Me: But you will get 9% immediately from Security B now, vs 5% now and 2% back in a year or so when they do their taxes
Retail broker: But my clients like getting franked dividends. Security A is franked.
Me: Don’t they prefer more money over over less?
Retail broker: But Security A is franked
I obviously lost that debate in the face of the ironclad nature of his logic.
Which leads to inheritance taxes (or death taxes if you are against them). I’m interested in the MB communities view on how acceptable or not they are to the general public.
To me, a very easy first step would be to make money from superannuation that is inherited taxable. I know, I know. Why would I (as someone who benefits from more money in superannuation) suggest that taxing inherited super might be a good thing. Let’s call it a moment of weakness. The (now deceased) recipient was given generous tax breaks so that his/her retirement could be funded – why should those tax breaks be passed on to his/her heirs who are already getting their own tax breaks on superannuation?
But logic doesn’t play a big part in this debate.
Which is why I’m interested in the general view about how politically dangerous inheritance taxes are. Are Australians irrational about inheritance taxes?
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