Kohler: Australia Must Tax Inheritances to Fix Intergenerational Gap
Synopsis
Australia is on the precipice of a record $5.4 trillion intergenerational wealth transfer and economist Alan Kohler has sounded the alarm: “The fair go” is at stake. In a slashing attack on the existing tax base, Kohler says that by not having an inheritance tax and by having “a completely absurd” capital gains discount we were sacrificing the young of Australia to prop up property prices. As Treasurer Jim Chalmers and shadow treasurer Tim Wilson argue over the future of tax reform, Kohler is adamant that the only way to fix intergenerational inequality is by removing the onus from workers while shifting it onto an extraordinary amount of untaxed capital and property locked up in older hands.
Economic analyst Alan Kohler has urged Australia to implement inheritance taxes, arguing that it’s sowing the seeds of mistrust between generations. In the existing system, he says, taxes work far too much and gives massive giveaways to the one percenters who have inheritances or have property.
- Alan Kohler writes that a $5.4 trillion wealth transfer in Australia will permanently entrench extreme inequality
- Treasurer Jim Chalmers and Shadow Treasurer Tim Wilson disagree as to how to plug the gap
- Kohler claims that taxing labour (i.e. work) while leaving capital (i.e. wealth) untaxed is unfair
- The ‘Capital Gains Tax’ discount is being blamed for house prices that are skyrocketing out of the reach of wages
Breaking Down the Wealth Gap
Australia is on the brink of triggering its biggest wealth transfer in history, as research indicates $5.4 trillion will flow from baby boomers to their children over the next two decades. Finance commentator Alan Kohler says it makes for a lottery of birth that now depends more on which house your parents lived in than on what you’ve done. Further to this, as Australia does not have an inheritance tax, this enormous pile of cash from the rich is passed on to other rich individuals and never helps those in greater need. Kohler argues that unless we tax this unearned wealth, the gap between rich kids and poor will be unbridgeable.
Wealth vs. Hard Work
At its basis, the problem is that our tax system is inside-out, Kohler says. If you have a 9-5 job, each dollar you earn is taxed. But if you have an investment property that gains value, there is a 50 per cent reduction on the tax you pay when it comes time to sell. Kohler notes that, since this discount was added in 1999, house prices have boomed twice as fast as wages. This sends a clear message: The government has a preference between people who sit on assets and people who go to work, with younger generations, many of whom depend largely on their incomes, left struggling in the meantime.
The Dispute Between Chalmers And Wilson
The Treasurer Jim Chalmers and his Tim Wilson agree intergenerational inequality is a huge problem, but have very different solutions. Chalmers is under pressure to overhaul the Capital Gains Tax discount in his May budget. Although he says he is ruled by fairness, he also has been careful not to promise big changes, at least until formal talks begin. On the other hand, Tim Wilson has committed to railing against all tax increases because they represent an assault on aspiration and that government should be looking at cutting spending instead of levying new kinds of taxes.
Australian states had inheritance taxes (widely referred to as “death taxes”) until they were abolished in the late 1970s. Kohler says that restoring them and/or at least taxing the primary residence in very wealthy estates is literally the only way to fix the budget and help young people. As things stand, the government already has a $40 billion hole in its budget; and with AI and robots increasingly taking jobs away from people, the tax dollars coming in from wages will further diminish. Kohler, discussing the need to tax untaxable wealth that doesn’t move: Without a means of taxing immobile sources of wealth such as land and minerals, we will not be able to build schools and hospitals for the next generation.
Bridging the Financial Divide
As the rich see their investments underwritten by tax breaks, monthly workers are also victims of something called “bracket creep.” Workers are taxed in higher and higher brackets (i.e., subject to a higher and higher percentage of higher income) allowing them only marginally more spending power. By contrast, capital gains and company profits often already are shielded from inflation. According to Kohler, this creates a policy of krulety under which people on the edge suffer the most and those with flush inheritances waiting are given a free pass by the tax office.
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