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Taxing the ‘rich’: the potential tax consequences of inequality

Writing recently in Firstlinks, Andrew Macken enlightened us on the drivers and consequences of inequality and how investors can prepare their portfolios accordingly. He pointed out that inequality reduced dramatically after World War II due in part to higher taxes. The potential for new taxes specifically targeted at the ‘rich’ is explored in this article.

The gap between rich and poor is widening

The widening gap between the ‘haves’ and the ‘have nots’ is indisputable and an unfortunate outcome of our economic system. The COVID-19 pandemic has illuminated the problem with the combined wealth of Australian billionaires rising by more than 52% from December 2019 to December 2020. House prices have reached record levels and stock markets have been catapulted to new heights, bringing good fortune to those holding such assets.

By comparison, regular families have experienced stagnant wages, unemployment, continued low levels of home ownership and increasing debt and in many cases have tapped their superannuation early just to survive. Internationally, a recent Oxfam report claims the combined wealth of the world’s 10 richest individuals rose by US$540 billion during the pandemic and concludes that current policy settings have allowed:

"a super-rich elite to amass wealth in the middle of the worst recession since the Great Depression, while billions of people are struggling to make ends meet".

Such statistics have led many to question the capitalist system and demand the rich contribute more.

Unlikely warning voices

Calls for action have come from some unlikely places. As recently as this week, a London-based asset manager opined in the Financial Times that a wealth tax would support the pandemic recovery and reverse part of the long-term increase in wealth inequality. Two weeks ago at a recent Davos World Economic Forum, Russian President Vladimir Putin cautioned that the pandemic and rising inequality has created alarming parallels to the 1930s and warned that a failure to address these tensions helped trigger Word War II.

In December, hedge fund billionaire Ray Dalio warned that political and wealth gaps in the US could lead to conflict and even civil war.

Based on the mind-boggling statistics above, it is easy to mount an argument for taxing the rich more based on fairness grounds. However, notions of ‘fairness’, ‘rich’ or ‘wealthy’ are challenging because of their subjectivity and there is no widely accepted view on what is fair or who is rich or wealthy.

Recent house price data from Domain for the December quarter reveals that the median house price in Sydney reached a record high of more than $1.2 million. But anyone living in Sydney knows that if you own a house of median value, you are by no means ‘rich’ or ‘wealthy’ lending support to Warren Bird’s argument in Firstlinks that millionaires are not wealthy.

Furthermore, the latest official data reveals the average Australian household has a net worth of $1,022,200 with half of Australia’s households having a net worth of $558,900 or more, further clouding the distinction between ‘rich’ and ‘poor’.

Recent international developments

Globally, government responses in the form of direct income support and other fiscal measures have been extraordinary and necessary but the fiscal consequences could last a generation. To help address the burden, some countries have introduced controversial measures. For example, in early December, Argentina passed a new one-off tax on its 12,000 wealthiest citizens - those with assets worth more than 200 million pesos (US$2.5 million). The so-called ‘millionaires’ tax’ is a progressive rate of up to 3.5% on wealth in Argentina and up to 5.25% on wealth held outside the country and is expected to raise around 300 billion pesos to purchase medical supplies, provide relief to small and medium-sized businesses, and help poor neighbours.

It has led to similar calls in the UK for the imposition of a one-off wealth tax on the super-rich. The Wealth Tax Commission, a group of leading tax experts, academics and policymakers, issued a report in December stating that targeting the richest households would be the fairest and most efficient way to raise taxes in response to the pandemic. Their modelling claims that a levy of 1% on the value of household assets over a £1 million threshold could raise £260 billion over five years.

Theoretical options for new taxes on the ‘rich’

The effectiveness of wealth taxes rests heavily on the thresholds set, which assets and liabilities are in-scope and the rates that apply. Prior to the pandemic, wealth taxes were not particularly popular amongst OECD nations. According to the latest statistics (up to 2018), only five OECD countries (Colombia, France, Norway, Spain and Switzerland) levy a recurrent tax on individual net wealth. However, the revenue raised from these taxes is relatively small at an average of approximately 0.2% of GDP.

An OECD report in 2018 on the role and design of net wealth taxes concludes that:

“from both an efficiency and equity perspective, there are limited arguments for having a net wealth tax in addition to broad-based personal capital income taxes and well-designed inheritance and gift taxes”.

However, the report also argues that:

“capital income taxes alone will most likely not be enough to address wealth inequality and suggests the need to complement capital income taxes with a form of wealth taxation”.

Australia has a progressive income tax system and taxes capital gains, although the latter are taxed concessionally in many instances. Arguably, Australia relies too heavily on direct income taxation and should tax unearned income or idle wealth more heavily.

Inheritance taxes (otherwise known as ‘death duties’ or ‘bequests taxes’) existed in Australia until the late 1970s. Today, Australia is one of only a handful of OECD countries not to tax inheritances. While inheritance taxes are relatively efficient (they have little impact on incentives to work and save), they raise little revenue compared to income or consumption taxes.

In the UK, the standard inheritance tax rate is 40% and is charged on that part of the deceased’s estate above a £325,000 threshold. In recent years there have been calls for the introduction of inheritance taxes in Australia, New Zealand and Canada to address housing affordability, aging populations and growing inequality.

Realistic options for Australia

Last year, I outlined some general options the government could use to start repairing the fiscal hole caused by the pandemic including the unwinding of the legislated personal income tax cuts (in fact, these were brought forward!).

However, options such as the resurrection of a ‘Temporary Budget Repair Levy’ remain and could easily be modified to ensure a greater contribution from those deemed ‘wealthy’ or ‘rich’. Other options touted for some time include the reduction of the CGT discount (to 40% or 25%) and limits to negative gearing. These tax concessions are enjoyed primarily by the ‘haves’ as opposed to the ‘have nots’ so a reasonably arguable case for reducing them could be made on equity grounds.

The findings of the Retirement Income Review delivered in November raised intergenerational equity issues. For example, it found that most retirees leave the bulk of their retirement savings as a bequest instead of drawing down on it to fund their retirement. This raises the question of the purpose of the superannuation tax concessions which are meant to assist with the building of future retirement income and not purely for wealth accumulation. This could impact many investors if a higher tax rate is applied to superannuation bequests paid to non-dependants (currently 15%) to recoup the tax breaks not utilised in retirement.

The Review also suggests there has been insufficient attention given to assisting people to optimise their retirement income through the efficient use of their home equity and concludes that the pension system favours homeowners through the exemption of the principal residence from the age pension assets test. Accordingly, the age pension means test could be adjusted to include part of the value of the family home over a certain threshold, say $1 million, to address taxpayer subsidisation of property inheritances and to ease the pressure on the pension system.

What can investors do?

Investors should think more proactively and strategically about the tax positions of their investment portfolios, including liaising with financial advisers and tax specialists (e.g., timing of asset sales, the entity within which assets are held, general estate planning) based on their circumstances and the current rules. However, they should keep an eye out for any significant trends emerging in the tax landscape.

One thing is certain, the debt repair challenge thrust upon the government is too large to be addressed through normal means once the economy recovers. At some point, the politicians will start debating how to reduce the national debt but this time they may bow to societal pressures arising from rising inequality and implement measures aimed at simultaneously easing budget pressures while reducing the gap between rich and poor.

 

Dr Rodney Brown is a Lecturer at the School of Taxation and Business Law (incorporating Atax) and a member of the Centre for Law Markets & Regulation at UNSW Business School. This article is for general information only, as it does not consider the circumstances of any individual.

 

51 Comments
Hans Knutzelius
March 21, 2021

A simple way to raise tax is to bring the black economy into the open by making cash payments less attractive.
Who has not been offered a discount for cash? Were Government to make it any transaction above $50 illegal it would completely remove the incentive to have large amounts of cash for no-one would accept their cash. If you cannot spend it why would you accept it. A major benefit would be the virtual removal of the illicit drug scourge.
Drug dealers are in business - businesses which deal only in cash. Removing cash would destroy their business model with massive savings to the community - think policing costs, jail costs, hospital costs let alone the massive lost productivity of those affected by drugs.

Ruth
February 18, 2021

I am not sure about this rich getting richer and poor getting poorer idea. I think we are all getting poorer because the asset prices are artificially pumped up and the returns are diminishing. For example, a rental property may increase in price and costs of acquiring and maintaining are rising, but rents are not rising. That cannot go on indefinitely. Loose monetary policy and our diminishing productivity as a nation are the causes.

Sam
March 07, 2021

Good article. So if I have this right, Governments around the globe have embarked on a massive bail out scheme because no matter what, economies are no longer allowed to go backwards, and now, the elected politicians are looking for ways to claw back their collective waste. And from who else, but the "rich"? The major problem as we all know, is that, especially in Australia, those classified as "rich", really aren't.

And when money is printed on the unprecedented scale that we've seen, who did they think would benefit the most from it? Ordinary Joe, struggling to pay their mortgage and buy beer? Or institutional investors, who thrive on stimulus? And now we hear cries that the "wealth gap" is increasing. Really? Did no-one tell the politicians that would happen? What a sad state the world is in.

John Morris
February 18, 2021

George there is probably a balance somewhere. There needs to be incentive to build wealth but accidents of birth define the ease at which this can be done. What we are now experiencing (more evident in the US) is a working poor who die and leave debts being owed. No matter how hard they work or for how long they will in all inevitability die with debts. We are now seeing the growth here of insecure part time, lowly paid employment which will inevitably lead to our own working poor. Underemployment is huge especially amongst our younger workforce and despite all their best efforts escalating house prices (predicted to be 20% in the next two years in Sydney and 14% in Melbourne) will be a hill too far for many people. The other side of this wealth equality coin is the significant increase in wealth of those lucky enough to own property and equities, aided and abetted by successive Federal Governments who have designed a protected tax environment for those lucky enough to have large super balances or an ability to dump large amounts into this protected environment. Where that balance lies probably needs to be discussed in the short to medium term so we do not lay such extraordinary Covid debts at the feet of our young people, especially true in an aging population.

Ruth
February 18, 2021

Re this talk of wealth tax: This is already paid by property owners. It is called land tax.
Re superannuation: Smart young people know there have been so many changes to the system over the years they don't want to contribute and have their savings locked up until who knows when in the future. They think they will never see the money. Many just go overseas.
Re 'unearned income': Self funded retirees have always had to work to responsibly provide for themselves when young and continually have to monitor investments in retirement instead of just watching TV. Unearned income is that provided to people who only have to fill out Centrelink forms.
A raise in GST might be a good idea, but care must be taken that it is not too hard on the working poor.

Kim
February 18, 2021

How much tax do those CEO's of Australian ASX listed Companies pay? I was a Westpac slave for 38 years -worked in 4 different States and all over country SA - got to a decent level and -retrenched. Gail Kelly reportedly earned close to $12m in her final year as MD and Bob Joss went back to America with an alleged $40m in pay, benefits and options. So are they able to make grossly inflated tax deductible donations to an Institution? If the average wage is around $75k pa., then why is so much needed to attract a CEO? The rot started in the USA with grossly inflated salaries, and we have blindly followed.

David Hellstrom
February 18, 2021

David H,
Interesting reading ! Here is my actual experience after 20 years of retirement (I am now 86 )
I retired in 2000 with 350,000 in my super fund. I also had 750, 000 outside super invested. Don’t ask me why !
Over the years I withdrew the statutory minimum from the super fund and lived on that plus the income from my own savings. I invested mostly in equities particularly banks and LICs. Now twenty years later, because my wife and I chose to live modestly, my super fund is now worth 810,000. In addition, my wife has passed away and I have moved from my big expensive apartment to a retirement village achieving 2,800,000 from the sale. I note that I can now transfer another 300,000 to my super fund as a “downsizer contribution”. So I now have a super fund with 1.1 million in that started out with 350,000.
Something wrong here !!!!!

John
March 18, 2021

Nothing wrong here at all. Your super fund compounded its capital at under 5% p.a. after mandatory minimums were taken out. Inflation ate at least half of that capital growth. Those minimums would have been less than the earnings on the capital, so real capital growth may have been closer to zero. You lived modestly on super's earnings and earnings on $750k invested outside super. The only question is: Assuming you are physically OK, why live modestly now? But if you insist, why not help out the kids or struggling family members with some of your "surplus" capital?

Adria Pounsett
February 18, 2021

Who is rich and who is poor is clouded by company tax and family trusts into which people pay their incomes and the family trust or company paying them a pittance . This way the company or family trust is "rich" but the payees are poor. In this way a member of a family trust that has plenty of money can receive a government pension. Their house and car etc is owned by the company so does not appear as an asset and may even be charging them rent. I realise companies and family trusts are quite different , but they are both used to make it appear that members are poor whilst in actual fact being quite rich. In many cases our affluent people are paying no tax and perhaps receiving a pension. So rich people can appear poor through these structures.

John
March 18, 2021

Ah, yes, keeping the family home within a company structure. Some folks do it for asset protection, but it's been a bad idea these last 25 years, due to the CGT liability at company tax rates (30%) when the home gets sold, as it surely will some day. I'd rather forgo the aged pension than pay so much CGT.

AlanB
February 17, 2021

So if I don't study, don't get a job, don't work hard, don't live within my means, don't save and don't pay off a house then I am entitled to the savings accumulated over a lifetime by your parents who did study, work and save?
Where is the logic in that?
An inheritance tax on wealth is simply a disincentive to work, study, save and aspire to a better life for one's own family. A wealth tax rewards, instills and sustains mediocrity, laziness, apathy, hopelessness, poverty, envy and academic tenure.
“The problem with socialism is that you eventually run out of other people's money.” (M. Thatcher)

Ruth
February 18, 2021

I agree AlanB. Taxation is the problem, not the solution. The taxes end up being paid by the middle class or those aspiring to be middle class, not the super-wealthy, which destroys the middle class. The result is super-wealthy and poor people only, leading to one of two outcomes: fascism or communism. Both disastrous outcomes. The only way to increase wealth for the country is not to redistribute it, but to increase productivity of the country.

rtts
February 18, 2021

Conclusion not supported by logic presented. Not having a wealth tax, as you put it, "sustains mediocrity, laziness, apathy, hopelessness, poverty, envy and academic tenure" but by the children who inherit. At least that gets back to where the Alan's statement started with the children.

Furthermore, the empirical evidence does not support he proposition that higher taxes cause less "work, study, save"

RJC
March 21, 2021

“Empirical evidence does not support higher tax = less work”. LOL. Firstly, you ignore human nature and the impact of incentives. No one voluntary pays more tax than they have to. Productive people resent paying others to go fishing. Where punitive wealth taxes have been implemented they has universally failed (France imposed very high tax on incomes over EUR1m about 15Y back and there was a tax exodus. It removed the tax within 4 years. There are many other recent examples so look them up). Moreover, ABS stats do not support rising inequality in this country. In Australia, this is a political argument by people who resent others having more. Would Australia be better off if our billionaires and HNWI relocated to Singapore? No, as we would loose valuable jobs and investment. Wealth taxes don’t redistribute income, they redistribute people. Government needs to spend money better and people need to manage their affairs better. Charity begins at home. If you want to tax success I promise you there will be an equal and opposite force that comes to bear. University profs always peddle wealth tax as their immense talent is not recognised by the capitalist system. Many would suggest for a good reason.

Robert Thie
February 17, 2021

Poor people have never become rich, by making rich people poor!

James
February 17, 2021

Not "rich" perhaps, but a lot better off at the expense of others who work hard!
I have no problem with assisting the genuinely needy.
I do have a problem with the lazy, expecting a better standard of living than they are prepared to work for, holding their hands out!
Socialism does not work!

john
February 16, 2021

In regard to the statement
""
Australia is one of only a handful of OECD countries not to tax inheritances
""
I was under the impression that superannuation is taxed when going to a beneficiary ??

SMSF Trustee
February 16, 2021

Even more fundamental, if an inherited asset is sold then capital gains tax is levied. The existence of a capital gains tax regime reduces the need for inheritance taxes significantly.

Paddy Duke
February 17, 2021

You are on the right track John but are quite understandably getting the concepts of beneficiary and dependent mixed up. A superannuation death benefit is tax free when paid to a dependant beneficiary under the super law (SIS Act) definition of a dependent AND the taxation act (Tax Act) definition of a dependent. This is made more confusing because the 2 definitions are different. When paid to any other beneficiary it is taxed generally (depending on the components) at a rate of 16.5%. Advisers refer to Superannuation Death Benefit Tax as a hidden inheritance tax. 

Graham Hand
February 17, 2021

Paddy, the 'inheritance tax' on super was not overlooked by the author but mentioned later in the article: This raises the question of the purpose of the superannuation tax concessions which are meant to assist with the building of future retirement income and not purely for wealth accumulation. This could impact many investors if a higher tax rate is applied to superannuation bequests paid to non-dependants (currently 15%) to recoup the tax breaks not utilised in retirement."

Pete
February 14, 2021

Whilst I see pros and cons on both sides of the debate, it all assume that increasing taxes will result in more equality - distributed via government mechanisms. As anyone in Victoria can attest to, government spending of taxes is NOT a guarantee of wealth distribution - you just have to look at the 1 billion dollars that was lost over the East/West road development debacle (for better or worse). Taxing people more puts all our faith in trying to build equality into the hands of those who's agendas can flip based on a 4 year cycle of trying to impress the public. I have very little faith that extra taxes would end up being distributed appropriately.

Robert
February 14, 2021

Those with substantial super assets who plan to leave an inheritance for their children, rather than spending the funds into the economy, are receiving some criticism in the current debate. Perhaps we should remember that the children of the baby boomers face considerable difficulty achieving home ownership, attributable partly to decades of over-generous tax concessions on property investments, encouraging massive price escalation/speculation (we are a nation of landlords). These concessions should be reduced; for example, a concession could be allowed on the first investment property only, no concessions on any further property investments. The children of baby boomers would like to buy a home to live in!

Greg
February 14, 2021

I am curious about "peeling the onion" with respect to the statement:
"... most retirees leave the bulk of their retirement savings as a bequest instead of drawing down on it to fund their retirement"

My curiosity is regarding what happens with these bequests - once passed on to the next generation.

There seems to be an assumption (to state it poorly) that bequests are "the rich leaving to the rich" and that this is automatically a bad thing. While there may be some truth in this is, is there any data on distribution and subsequent spend and release of bequests into the general economy ?. With current birth rates and re-marriage and failures of multi-generational wealth making dynasties I would speculate that bequests are not permanently locked up and are distributed between multiple family members and have a level of injection back into the economy.

Is there any data to inform in this area ?

Philip Smith
February 14, 2021

This is the best article I’ve read in a very long time. Well done to Dr Rodney Brown.
Phil Smith

Ramani
February 14, 2021

Amid all the myopic leaders unable to look beyond the next elections making visionary reform all but impossible, could we at least agree some basics:
1. regardless of ability or the luck of being born into a supportive family or a sensible regime, all - migrants and refugees included - must be provided resources to live and improve their lot.
2. financing such support requires the better-off to contribute, regardless of whether it is from hard work, skills or luck
3. tax concessions to encourage retirement savings must be truncated when used to pass on wealth
4. revisit outrageous concepts such as salary sacrifice (essentially state-sanctioned pretence), exemption of family home from age pension testing, ability to game the system through gifts, children outsourcing parental upkeep to the taxpayer yet turning up to collect the taxfree inheritance
5. taxfree entities (religions, primarily...) should carry a prorata obligation to care for the poor (including the irreligious) as a quid-pro-quo through state edict
6. change the legal regime whereby multi-billion tax-dodgers escape to Panama but the family owing $223 gets gutted

May not improve matters much, but a start.

Tony Dillon
February 13, 2021

Remember that the bulk of any billionaire's wealth can be transient. It is not necessarily all realised wealth. So statements like "the combined wealth of the world’s 10 richest individuals rose by US$540 billion during the pandemic", is in the main, a point in time observation only, and could be reversed by that and more with the next GFC or whatever.

Wealth extremes will always exist, whilst extreme global poverty is ever diminishing thanks to technology, liberalism, and social movements.

R E Alitty
February 12, 2021

Yes lets smash any incentive to work hard and employ others. Why not just give all your money to the university academics that get rich by spreading the "I want want you've got" argument amongst the sheep so they think things will get better if we just take it off the hard workers...and while we're at it lets make a law that says all people must look alike ( except for the academics ...they must look better) !!! You know how I know this pattern.....I LIVE IN NZ and we're going to pay big time. Well done socialist.

John
March 18, 2021

There is a big difference between equality and equity. Equity of opportunity is good. Equality of outcome via redistribution or social engineering is seriously bad because it equates to socialism. We will soon be giving even more of our taxes to those university academics you mentioned, because they will be out of a job as the Ponzi scheme of endless foreign students becomes a mirage.

soundos
February 11, 2021

Very interesting article!

Matt
February 11, 2021

It's basically the Thomas Piketty theory. Capitalism is great at creating wealth but poor at distributing it. Capital grows faster than wage labor. For the last 300 years, periods of wealth inequality have coincided with political and social upheaval. To maintain some semblance of balance, some form of equitable taxation policy is required.

Would you like to live in the United States or Venezuela? From my perspective, they both look pretty undesirable...

Trevor
February 11, 2021

Matt............. "Would you like to live in the United States or Venezuela? From my perspective, they both look pretty undesirable.." Really ? One is Western Capitalist and incredibly wealthy and "the land of opportunity" that everyone wants to go to.... the other is a wrecked Communist mess that everyone wants to leave. Seems a simple choice to make. You say or quote: "Capitalism is great at creating wealth but poor at distributing it." Really ? Name a better system! Capitalism is the only system that creates wealth from which everyone benefits! Communism fails everywhere, every time! China is a Mercantilist Economy and due to internal conflict and oppression, it will self-destruct again as well ! Again, you quote: "To maintain some semblance of balance, some form of equitable taxation policy is required." That is the politics of greed and envy speaking! Who told you that life is fair and equitable? No two people can ever be equal and that's why everyone must be treated equally at a personal level....but NOT necessarily at a financial or any other level. What are you going to do...give everyone "plastic surgery" so they all look equally good? The world is getting better and better. Ask yourself: Are YOU better off than your grandparents ? If so....that proves my point ! If not, what are you going to do to rectify that? 

Michael
February 12, 2021

Trevor, I think Matt was merely suggesting that although capitalism is rightfully the only consistently viable economic model, it leads to unintended economic imbalances. In both USA and Venezuela we have witnessed the negative consequences of capitalism.

Matt
February 12, 2021

Trevor you are missing the point... of the article and my comment.

It is correct that capitalism is the best economic system for wealth creation. It is also correct that the US has the largest nominal GDP (although not the largest per person).

But the argument is what is the point of a large nominal GDP if it isn't distributed? Would you like to live in a country that:
- has 21% of children living in poverty;
- has the greatest level of wealth inequality since the Great Depression;
- the bottom 80% of families own 7 of the nation's wealth; and
- a reduced middle class due to technological change.

I wouldn't. How do you think you end up with a person like Trump becoming elected in a liberal democracy? He is the symptom of the country's problems, not the cause of its problems (although he clearly has contributed to them).

And do you want to know a big reason why my standard of living is better than my grandparents? The advent of the social welfare system that was established after WW2: universal healthcare, public education, other forms, other social services. Do you want to know why the GFC/COVID-19 wasn't another Great Depression? A huge stimulus package for central banks.

How do you think all of that is paid for Trevor (putting aside the recent phenomenon on central banks buying Government debt)? But hey, not your problem is it. As long as you are doing okay who cares about everyone else right? I mean, what would Warren Buffett and the IMF know anyway? Bunch of communists who wouldn't know a thing about capitalism! It's obviously impossible to reconcile to capitalism with wealth distribution that doesn't curtail growth....

John
February 11, 2021

How wealth is accumulated should be a factor in determining wealth taxation levels. A small business employer typically puts everything at risk, including the family home, to provide employment for others, from which the employer (ideally) profits. Such employers should be rewarded with reduced taxation compared to those taking less risk, in recognition of the community service employers provide. Compare that to someone who just inherits the wealth of others. Would you dare tax them equally for equal wealth? This is why we will likely never have wealth taxes, but will solve the Federal debt problem with death/estate taxes backed up by gift taxes to stop avoidance of the former. The threat of death taxes would be a powerful motivator to spend (or donate) while one is alive.

Mark Hayden
February 11, 2021

The gap between rich & poor is a big issue. Investors should play a role in this debate. Warren Buffett has regularly said he should pay more tax. I welcome reasoned, intelligent debate on this topic. The market economy efficiently distributes scarce resources; but it doesn't look after matters such as the disabled (physically or mentally impaired); nor areas such as police, defense, medical, education etc.

McManus_in_Oz
February 11, 2021

Land value taxation is the only fair way in the end. Stamp duty must end and PAYE tax is excessive and unfair.

Hard Worker
February 11, 2021

Why do governments as of late, whoever is in power look at taxing by whatever means towards those that have worked very hard often 7 days a week 12 hours a day and been succesful to prop up in alot of cases those who are happy to work a 35 hour week holidays every year regular social events new cars etc etc and then at retirement expect a taxpayer funded pension at no cost to them, no we will go for those in a lot of cases for those who retire and are not a burden on the taxpayer. I know of people who have 2 or 3 million dollars in super who have deliberately worked exceptionally long and hard for 30 to 40 years to have a reasonable retirement, remember the government changed the tax laws as of 1st July 2017 to tax those with more than 1.6 million in super. The government will want to be very careful how they pay back the mamoth burden the country faces. If you want to raise extra money I suggest they tax everybody, but the people who want the best of everything , a pension etc etc, will howl like a wolf and a weak government will follow like a little puppy.

Neil
February 14, 2021

This really irks me; that people have more in superannuation accumulation accounts, accruing concessionally taxed returns and gains, than can be rolled over to the superannuation pension account. The purpose of those tax concessions was so people could have a pension account to the maximum limit of $1.6 million. Returns on anything above that in an accumulation account and contributions to it should be taxed at the highest payg income tax rate.

Paddy Duke
February 17, 2021

It only irks you because you are not in this position. Those that have saved hard for their retirement have already been penalized by the moving of the goal posts with the imposition of the $1.6m pension limit. There was previously no need for an accumulation account as all your retirement savings in super were tax free once you retired over age 60. Yet you feel they should pay even more tax than what they now have to pay. These people are generally over age 65 so don’t and can’t contribute to their accumulation accounts by the way. Get your adviser to explain it to you. If you have one that is.

Bob Burford
February 11, 2021

A few potholes with Dr Rodney Brown's ideas, lets say a small business man/woman over there 50 years of working 60 hour weeks and employing between 3 to 10 people in the small business, he/she owned with the family. The acquires assets of say $3,000,000 plus they own there home outright. They decide when nearing retirement to buy 3 homes for there 3 children at a cost of $700,000 per home. They of course retain the homes in there names not there children's. They now have 1 home and $900,000 which they intend to spend over there remaining years of there life, as they can not get the Australian pension because the govt looks at them as though they own 4 homes, which technically/legally they do. $900,000 at 1% interest in the bank gets you $9,000 a year so you have to spend the capital or go into risky equity investments. Now factor in some of Dr Browns suggestions above and what is the point of a family working really hard and employing people?? Yes the 3 homes could be transferred to the children befor death, incurring stamp duty, but with that comes the risk of marriage break ups and loss of 50% of the home.
GST increased to 20% on everything except take home food, home dwelling rents, electric, gas, phones, water, rates and other necessary items for the likes of disabled equipment, would I believe solve the problem. A cap of say $1.6M on a home purchase above that add a 20% GST, on a luxury car of say $85,000 plus add a 20% GST. The GST would also capture big drug dealers, crime bosses, beside the very wealthy. Bob B.

SMSF Trustee
February 11, 2021

Why would they want to buy homes for each of their 3 children? I don't get that at all. Especially when nearing their own retirement! Surely by then their children are employed and earning income, and should be encouraged to work hard like their parents to build their own financial capacity.
Gradually running down that $3mn by spending it on their own retirement - hard earned after working 60 hours a week for 50 years - is surely what these folk need to be encouraged to do!

John
February 11, 2021

Some people buy homes for the kids to live in because that's what the culture back in the "old country" decrees. Some do it for wanting the grandkids to live nearby in a home the kids could not afford at that stage of life. Others do it because they feel guilty about neglect, having always been away from the nest earning the big bucks while the kids were young. If we don't want to inhibit helping the family, a limit could be set on total property value one can own when applying the pension assets test, without regard for whether it is the PPoR.

Dasvid
February 11, 2021

Great Bob, I agree totally. I would suggest however an increase of GST to say 12.5 % for a start . Too great an increase would be political suicide no matter who you vote for.

Peter Johnstone
February 14, 2021

It's "their". sorry.

Gary M
February 11, 2021

Thanks, Rodney, I agree we need to help the disadvantaged but I always think of one statistic when I read an article like this: half of Australians pay no net tax.

Paddy Duke
February 17, 2021

Good point Gary. 

David McDonald
February 11, 2021

The idea of taxing the family home over a certain value would lead to regional unfairness. A $1.5m home in Sydney is modest whereas a $1.5m home in Hobart could be a very substantial property. If both retirees own a 3 bedroom home in a middle range suburb the Sydney resident would be taxed but the Hobart resident would not pay tax.

George
February 11, 2021

What a great idea. Let's remove the incentive to "get rich" from the economy. Those poor people who work hard all their lives to become rich should pay for that privilege. It is only fair. How pathetic. How about we reward the "rich" for providing jobs for millions of Australians rather than finding new ways to tax them ?

Con
February 11, 2021

Why does the argument always revolve around how Govt. can increase revenue for redistribution, as opposed to how the economy and subsequent increase in wealth can be optimised for redistribution? Con

Graeme
February 11, 2021

That's the problem George. Those poor people who work hard under the current system ARE paying for the privilege, while those who don't work any harder but through luck or inheritance or a more aggressive tax adviser or whatever other reason end up with a lot more, get a free ride. I'd go along with rewarding the rich for providing more jobs. It would have to be better than the current system of rewarding them for pushing up the price of tax advantaged existing assets.

Robin Wood
February 14, 2021

spot on George

 

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