Australia's $5.4tn Wealth Transfer Sparks Calls for Tax Reforms to Curb Inequality
A predicted $5.4tn intergenerational wealth transfer over the next two decades is set to deepen economic disparities in Australia, prompting economists to advocate for significant policy interventions. This massive shift of assets threatens to entrench inequality and reduce productivity, raising urgent questions about how governments can address the looming crisis.
Former deputy reserve bank governor Guy Debelle emphasises that taxation is the primary tool for redistribution. "Taxation is how you redistribute. Basically, that's it. So what's the tax?" he states, highlighting the need to rethink funding models as wealth increasingly stems from assets rather than labour.
1. Implementing Death Taxes to Disrupt Wealth Replication
Prof Daniel Halliday from the University of Melbourne proposes including inherited wealth in the recipient's taxable income, adjusted based on existing earnings. "Inheritance means that wealth inequalities get more easily replicated from one generation to the next," he explains. This approach could appeal across political spectrums, as it doesn't interfere with market exchanges like income or consumption taxes do.
Prof Peter Siminski of the University of Technology Sydney supports considering death taxes, noting their potential to mitigate inequality without stifling economic activity.
2. Overhauling Pensions and Aged Care Systems
Associate Prof Bruce Bradbury from the University of New South Wales suggests moving towards more generous, non-transferable government pensions, similar to northern European models. He argues that Australia's superannuation system, while incentivising savings, often results in large wealth lumps passed to middle-aged children, exacerbating inequality. Reforms could include developing annuity systems and improving aged care services to reduce the need for personal savings reserves.
3. Capping Superannuation Balances for Fair Taxation
Dr Ken Henry, former Treasury secretary, calls for legislative caps on superannuation accounts that receive tax benefits, challenging the notion that superannuation is solely for retirement incomes. "We have to address the way that the superannuation system operates," he insists, advocating for limits to prevent excessive tax-free accumulation. Siminski adds that current exemptions undermine progressivity, making superannuation reform critical.
4. Reforming Property Taxes to Address Housing Inequity
Henry also urges a comprehensive review of property taxation, including negative gearing, capital gains discounts, and replacing stamp duty with annual property taxes. Siminski highlights the controversial idea of taxing the family home, which receives minimal taxation despite being a major inequality driver. "This protection of housing from tax actually makes it unaffordable for some people to get in," he notes, describing it as a welfare state for existing homeowners.
These proposals aim to create a more equitable economic landscape as Australia navigates one of the largest wealth transfers in its history, with experts warning that inaction could lead to irreversible social and economic divisions.
