In his ground-breaking book, Capital in the Twenty-First Century, Thomas Piketty argues that inheritance is increasingly becoming an important economic flow in Europe (around 12-14% of annual income and potentially rising to 16-24% over the course of this century)(p 399). Piketty also argues that such inheritances are a key driver of inequality over time, and notes the historically important role that estate duties had in the middle of the last century.
In this context it is significant that all Australian states had inheritance taxes until they were removed as a result of destructive interstate competition in the 1970s, leaving Australia as one of the few places in the world without any estate taxes.
The Henry Review of Australia’s tax system noted that inheritance duties are generally considered to be efficient taxes and recommended further study and community discussion of options. The Australia Institute has estimated an inheritance tax of the nature previously applied in Australia, would yield approximately $5b p.a. nationally (that is roughly equivalent to raising the GST by 1 percentage point). However, it should be noted that the Henry Review stressed that consideration of a bequest tax should be limited only to the largest estates or inheritances. This would mean that the large majority of estates or inheritances would not be subject to tax, and would therefore limit the amount of revenue collected.
Even with a limited revenue-take, SACOSS believes that inheritance taxes could be an important part of a fairer tax mix as they would fall on those who could most afford to pay, and could balance other regressive taxes. However, given the experience of the “Queensland-led” dissolution of the previous estate tax regime, SACOSS believes that such a tax would best be introduced nationally by all states, territories and the Commonwealth, and SACOSS calls on the South Australian government to lead that conversation - or perhaps, if necessary consider going it alone with an SA state tax.
In proposing this option, SACOSS is not oblivious to the political difficulties and the public resistance. But these should not be exaggerated. SACOSS' survey of community attitudes found that more people supported the idea of an inheritance tax on estates over $2m than opposed it, and when it was clearly put as a proposal to have that inheritance tax to reduce an existing state tax (ie. not an additional tax) 50% of respondents supported the proposal while only 27% opposed it.
With other sources of state revenue declining, or themselves being unfair, estate duties or inheritance taxes on large estates should be part of the tax reform discussion.
For a snapshot of estate taxes in selected OECD countries, see:
For more information in an Australian context, see:
Charity group calls for $5 billion death tax on Australia's super rich, ABC The World Today, 11 Feb 2016.
SACOSS, (2015) Submission to the State Tax Review Discussion Paper, South Australian Council of Social Services, Adelaide.