The new head of the Productivity Commission is pushing for a controversial change in how large inheritances are taxed, saying there is “no policy justification” for how little tax is paid by retirees.
In a speech in her former role as head of the Grattan Institute, Danielle Wood, the incoming head of the Productivity Commission, wants to begin taxing inheritances as part of an ambitious suite of reforms aimed at making the tax base fairer, the Australian Financial Review reports.
In exchange, Ms Wood says the increased tax revenue from inheritances could be used to fund income tax reductions for working age Australians. She says most people aged 50 and under would be ahead financially if that change was implemented.
Ms Wood says the current rules disproportionately favour older Australians at the expense of future generations.
“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 assets test.”
The Productivity Commission estimates that placing a 15 per cent tax on inheritances would deliver around $5.3 billion per year in revenue.
Australia is one of just eight developed countries worldwide that doesn’t tax inheritances since abolishing the tax back in 1979.
Ms Wood acknowledges that introducing an inheritance tax would be “political dynamite”, but wants the government to “at least have a sensible conversation” about the proposal.
The AFR article caught the attention of politicians in Canberra, with Opposition members peppering the government in Question Time over where it stands on tax reform.
But the government says it has no plans to even debate introducing an inheritance tax at this stage, with Labor Senator Deborah O’Neill telling Sky News there would be “absolutely no” tax debate and that the Opposition was simply mounting a scare campaign.
“I want to be really, really clear: the answer is no. Absolutely no,” the Senator said.
“But the actual facts of the matter should put paid to the next scare campaign that was attempted today in the Senate at Question Time by some colleagues who … want to create fear and alarm.
“Australians are well able to see through a scare campaign like this. And I want to say very clearly, inheritance tax is not on the agenda.”
Professor Robert Breunig, director of the Tax and Transfer Policy Institute (TTPI) at the Australian National University (ANU), says the inheritance tax idea has a lot of immediate appeal, but may not actually raise much revenue in practice.
“What they [inheritance taxes] do is they generate a lot of tax planning, and I’m worried about that in Australia, particularly because of the really heavy use of trusts that we have,” Prof. Breunig said.
“I think what wealthy people will do is just put their money into a family trust … and it won’t be subject to inheritance tax.”
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