‘Not radical ideas’: The Australia Institute suggests wealth, inheritance tax, CGT discount scrap

In a report delivered on the eve of the Economic Reform Roundtable, The Australia Institute shared “three simple, fair steps” to raise $70 billion a year in extra tax without harm to low or middle-income Australians.

The report, Three Ways Australia Can Tax Wealth Better, proposed a 2 per cent wealth tax on people worth more than $5 million (excluding their family home and superannuation), reintroduction of an inheritance tax and scrapping of the CGT discount.

Based on the Institute’s “three simple, fair steps”, the reintroduction of an inheritance tax would reduce intergenerational inequality and raise $10 billion per year, ditching the CGT discount would raise an extra $19 billion a year and would have the “double benefit” of making property more affordable.

It was also noted that a 2 per cent wealth tax on those worth more $5 million would raise $41 billion per year.

From these suggestions, Matt Grudnoff, senior economist at The Australia Institute, said if the nation wanted to unlock well-funded schools and hospitals, affordable housing, improved NDIS and a fair welfare system, these were not “radical ideas”.

“Australia is a low-tax country that does not do a good job of taxing wealth. It is one of the few developed countries in the world which has neither a wealth tax nor an inheritance tax. Correcting this would raise huge amounts of extra revenue for essential services and ease growing inequality in Australia,” he said.

“Even if you were to exempt the family home and superannuation, a two per cent wealth tax on people worth $5 million would raise $41 billion per year. If you limited it to just the 200 richest households in the country, it would still raise $12.5 billion per year.”

In response to the report and the think tank’s suggestions, Anthony Tripolino, senior accountant at Tripolino Accountants, said he was cautious about wealth tax in isolation, as without broader reform and strong integrity measures, it risked complexity without delivering certainty or fairness.

Speaking to Accounting Times, Tripolino said that while these suggestions were “well and good”, it circled back to the overarching fact that Australia needed broad tax reform.

Grudnoff backed the proposal to reintroduce inheritance tax as many countries, such as the US, UK, Japa,n and most of Europ,e enforced one or something of the sort.

“A couple of generations ago, Australia had probate and succession duties that raised 0.36 per cent of GDP, which, if reintroduced today, would deliver an extra $10 billion in revenue,” Grudnoff said.

“And it’s time to scrap the capital gains tax discount, for many reasons. Not only would it put downward pressure on house prices and reduce inequality, it would raise an extra $19 billion a year.”

In response to this, Tripolino said: “On inheritance tax, I’m open to a well-designed model which is targeted appropriately – frankly, I’d rather pay more when I’m dead than increase the burden on productive activity while I’m alive.”

“Any changes to CGT should be part of a broader package and targeted – whether that’s a reduced rate or limits on certain assets – and should include grandfathering to ensure fairness to those who have already made decisions based on the current status quo.”

With all suggestions presented by Grudnoff and The Australia Institute, Tripolino said the real issue was that it again highlighted the need for broader tax reform and “not doing things piecemeal”.

“Ken Henry made some comments recently to which I agree with – the government has failed to do three things – manage financial risks arising from the erosion of the tax base, maintain the integrity of the tax system and have regard to intergenerational equity.”

“This report merely highlights items relating to those three points Ken Henry made, but again, a more holistic solution is needed.”