The latest bad policy idea to come out of the woodwork, encouraged by the Turnbull government’s continuing refusal to rule‑in or rule‑out anything, is the suggestion that Australia reintroduce inheritance taxes.
The Marxian economist based at University of Sydney, Frank Stilwell, last week recommended a tax targeting bequests in excess of $2 million, believing ‘the wealthy … can make the payments without social distress.’
A similar suggestion was made by columnist Tim Dick: ‘inheritance tax, estate tax, death duty ‑ call it what you will ‑ a tax on large inherited windfall gains should be a part of any fair tax system.’
As recounted in this paper, Australian governments have not imposed any form of inheritance tax since the early 1980s.
This has meant, thankfully, generations of Australians have enjoyed a large measure of freedom in electing who they can pass their accumulations to, without the grabbing hand of the state taking their slice (although, it should be noted, government does this, and excessively at that, during one’s lifetime by taxing income, consumption, and so on).
These taxes are highly damaging in that they reduce the rate of investment pivotal to economic growth, and are particularly prone to tax evasion. They are also often seen as a solution for suppressing wealth inequality ‑ debatable given it would diminish incentives for people to aspire to become rich themselves ‑ but it doesn’t address several direct causes of government‑induced inequality such as land use regulatory restrictions, ultra‑low interest rates by central banks, and corporate welfare.
All in all, inheritance taxation is a terrible idea for Australia and the government should swiftly rule it out.