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Death tax for booty

Sep 9, 2020 • 15m 50s

Inheritance taxes are a feature of most advanced economies, including the UK and the US. But in Australia they haven’t been levied for 40 years, and their abolition has contributed to growing inequality in the country. Today, James Boyce on why now is the right time to restart the conversation on death taxes.

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Death tax for booty

305 • Sep 9, 2020

Death tax for booty

[Theme music starts]

RUBY:

From Schwartz Media, I’m Ruby Jones. This is 7am.

Inheritance taxes are a feature of most advanced economies, including the US and the UK.

But in Australia, they haven’t been levied for 40 years, and their abolition has contributed to growing inequality in the country.

Today, James Boyce on why now is the right time to restart the conversation on death taxes.

[Theme music ends]

RUBY:

James, Australia used to have a death tax. So what happened to it?

JAMES:

Well, the Australian colonies at the time of Federation had a form of inheritance tax or estate tax copied from Britain. So they were just sort of a fact of life.

The idea that the wealthy, when they passed away, there'd be a tax levied by the state on their estate. It was accepted as a normal part of life right through to the 19th century and the 20th century.

RUBY:

James Boyce wrote about death taxes for The Saturday Paper.

JAMES:

And Queensland premier, who most people will still remember, or at least have heard of, Sir Joh Bjelke-Petersen, who had a rare talent for combining cronyism and populism.

Archival Tape -- Joh Bjelke Petersen:

“I think Queensland today is in the best state in which to live, in which people come to us by the hundreds every week and much doubling our population against the way the states increase in the other parts of Australia, their rate of increase is only half that of ours.”

Archival Tape -- Joh Bjelke Petersen:

“There’s no compromise. You can't have any tax of any sort. Any new taxes, less taxes, lower taxes, it can be done.”

JAMES:

Sir Joh Bjelke-Petersen announced that he was going to get rid of them, just abolish them without any review process.

Archival Tape -- Joh Bjelke Petersen:

“We've got no death duties, gift duties, wealth tax. And we've got no beer tax, cigarette tax, no petrol tax. No FID, that's financial institution duty: all these taxes that all the other states have got, we haven't got them.”

JAMES:

He talked about encouraging wealthy retired people, other states would come up to Queensland and bring their money and their wealth. And there was a lot of that sort of nonsense really.

Archival Tape -- Joh Bjelke Petersen:

“We've got the edge over them in every way. And there's no argument about that. Our taxes are by far the lowest. We haven't got many of the taxes they have.”

JAMES:

He was a good politician, he could sense the mood. And he took a populist decision, which was obviously very liked among his base...

Archival Tape -- Joh Bjelke Petersen:

“Give them security, and you know the people know they have a government that’s strong and positive and so on, and against unions. And then they do things, they achieve things, that’s all we did in Queensland. We made it easier for them to live, we gave them security…”

JAMES:

...and able to take a bit of a swipe at the southern states along the way.

Archival Tape -- Joh Bjelke Petersen:

“And so we've got a great place in which to live and we've got nothing to fear. And this is why we are growing. And we are the state that people seek after.”

JAMES:

And it did make it in a federation system, to be fair to the other premiers, if you've got one state without it, it is difficult for other states to keep it because people can avoid the tax in one state by shifting their assets into another.

So between 1978 and 1984, all the states abolished them. They were citing nervousness that their elderly people would pack up and move to Queensland if they didn't follow suit.

RUBY:

So that was the fear of the other states, that they would lose residents to Queensland because Queensland didn't have a death tax?

JAMES:

Exactly. That was the reason they gave. You know, once the die led the way, it was just very difficult to contain anymore. But certainly one of the reasons that was widely given at the time was that people will be packing up and moving to the Gold Coast, so we'd better abolish them as well.

And it became deeply unpopular because it was easy. And you could imagine, you know, people the images of grieving widows trying to deal with this callous state taxation. There they were, trying to arrange the funeral and they were also having to deal with a tax office.

The sad thing was in retrospect, a terribly costly decision for the nation. And Australia entered the 1980s on its current trajectory of getting ever more concentrated in a few hands without any form of inheritance or death tax.

And one of the few developed countries in the world that did not have that. And that's been the situation ever since.

RUBY:

Yeah, so how much money has been lost in tax revenue since death taxes were abolished?

JAMES:

They were still even then generating roughly around 10 percent of state taxation revenue in the 70s. So in today's terms, you know, that would be over five billion dollars a year. It's clear that Australian governments have lost well over 100 billion dollars, you know, probably double that or more.

RUBY:

And so how have states made up for that lost revenue?

JAMES:

From the very same time as this was occurring, all the states following each other in liberalizing their gambling laws except the WA, and particularly allowing poker machines, not just ordinary poker machines, but high intensity, highly addictive poker machines that, you know, all other countries of the world were confined to casinos if they were allowed at all.

Australia started introducing them into the pubs and clubs to have the most liberal gambling laws in the world. And very soon, Australia became the biggest per capita gamblers in the world, largely driven by this proliferation of poker machines, which were so attractive to the state government because of the revenue they provided.

So they spread out from New South Wales to all the other eastern states and territories through the 1980s. Tasmania being the last one during the party legislation in 1993.

RUBY:

So you're saying that at the same time that state governments were losing revenue in death taxes, they relaxed gambling laws, which essentially means that they're now making a similar amount of revenue from people addicted to pokies rather than from deceased estates?

JAMES:

Exactly. Poker machines are perceived or presented by the industry as the solution to these revenue problems of the states.

The only problem being, of course, that the poker machine taxes are largely paid for by the living poor rather than the wealthy. Also, there are massive associated harms and other costs to state governments from this explosion in gambling expenditure in Australia

There’s a massive impact on mental health, homelessness, domestic violence. I mean, really, the emergency relief services, homelessness services, you can go on and on and on in terms of the costs of gambling harm.

RUBY:

We'll be back in a moment.

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RUBY:

James, we're talking about death taxes and the fact that Australia is almost alone now in the world in not having one. So what is the economic argument for a death tax?

JAMES:

Basically, the idea is that this is a windfall gain. When the wealthy pass on their estates to their children, who are usually already very wealthy, when they pass on the state in tax millions and millions of dollars, tens of millions of dollars. Of course, that bears no relation to economic efforts. It's simply a windfall gain. It bears no relation to productivity. It's not related to investment or consumption on retirement incomes. If you tax it, you're not actually impacting on productivity. You're not impacting on investment choices. You're not impacting on consumption, which, of course, is pretty cool at the moment as we try and recover from Covid.

It’s not even impacting on retirement incomes, which has been such a big issue in the Labor Party's policy proposals at the last election. And not only are you not doing economic harm in that way, you're also reducing inequality. And Australia's got a massive problem with wealth inequality.

Young Australians are on track to be the first generation with less wealth, less stake in the country than their parents had. So, again, to address that, we need to be looking at ways of taxing wealth, not just incomes. It makes a lot of sense on economic and social grounds.

RUBY:

Would an inheritance tax discourage people from working hard and building wealth in their lifetimes, if they know that a proportion of what they've made would be taken when they die?

JAMES:

Well, there’s sort of thresholds we're talking about, but we're talking about the hypothetical of a threshold of four million dollars would only impact on about three per cent of Australians that still generate very, very significant revenues because of the level of wealth concentration.

Wealth concentration is now so high in Australia, so much wealth is owned by that top one, two, three per cent.

But in Australia because of the levels of tax concessions that we have on wealth, most of this income that we're talking about has never been subject to any form of taxation. So it's not a case of double dipping or double taxation. It's a case of this wealth that’s been accumulated being taxed for the very first time.

RUBY:

At the last federal election, we saw death taxes make a comeback as part of the Coalition's campaign against Labor, even though the Labor Party wasn't actually proposing one. So why do you think that was?

JAMES:

It was playing into, really I think it's sort of emotional fears around the whole process of dying and the idea of paying a tax when you're dead.

Archival Tape -- [Audio compilation of several new outlets speaking of the Death Tax]:

JAMES:

You can play into fear, as you can imagine. I mean, Labor had no policy, so it was just this idea of a death tax that was being spread.

Archival Tape -- Pauline Hanson:

“And if you haven't heard the news, Bill Shorten, supported by the Greens, wants to reintroduce death duties or death taxes. Well, let's see what the people have to say about that. “

JAMES:

So it's, there's sort of there's a memory that these taxes were sort of deeply unpopular and aroused all these irrational fears.

Archival Tape -- Unidentified Woman #1:

“Well, I don't think that's right for them to do, because that's our money for our kids and their generation, not for the government to take.”

Archival Tape -- Unidentified Woman #2:

“I don’t think we should pay taxes for dying.”

JAMES:

And this is sort of perpetuated and became so deeply entrenched in the culture that we can't even have a sensible conversation about them. Part of the reason I wrote the article for The Saturday Paper was I just think there's an opportunity now in the current environment, let's have a conversation about it. Death is a reality. Taxation is a reality. It's working out how we're going to fund a compassionate society. I think Australians are more up for this conversation than the politicians might realize. And, you know, it's up to us and I think especially older Australians, to show that we know we're ready to have a conversation and we're not frightened.

RUBY:

Do you think realistically, though, that a death tax can achieve any political traction, especially given the way that it was used in the last election? Who would go near it at this point?

JAMES:

Well, I think before Covid, it would have been a long haul.

RUBY:

Mm.

JAMES:

But, I mean, Covid has changed everything. We're not only dealing, of course, with this massive debt now and Australians are still carrying high levels of personal debt. Now we've got these high levels of government debt, but we're also very aware as a community now about the failings and the inadequacies and the need to put on increased funding to our health and aged care system in particular.

I think what's politically realistic, very different from what it was before, and it's partly the recognition of the practical problem. We're going to have to get new sources of funding. You know, we can't just afford to hit normal wage and salary earners and younger and younger workers. It's also, I think, a nation of a fairer society.

I think it's a sense that's come out at over, you know, to use that terrible cliche, we are all in it together. You know, we're not just in Covid together. We're in life together. These things are a part of living in a community or a society which people experience as fair. Not as equal, but as fair. And I think that's what's been lost in Australia.

RUBY:

James, thank you so much for your time today.

JAMES:

Thanks! Thanks for having me on.

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RUBY:

Also in the news today…

Two Australian journalists working in China have been rushed home after police demanded interviews with them, leading to fears that they may be detained.

Bill Birtles, the ABC's correspondent based in Beijing, and Mike Smith, the Australian Financial Review’s correspondent based in Shanghai, flew to Sydney after taking refuge in Australian consulates for a number of days.

Last week, the Chinese Government publicly confirmed the arrest of an Australian journalist working for China’s state media.

And the inquiry into Victoria’s hotel quarantine program has heard that the state government didn’t adequately meet the needs of returned travellers while they were in vulnerable positions.

Victoria Police also gave evidence that hotel guests were being allowed to leave the premises. Officers reported those who were supposed to be in quarantine were returning to the hotels carrying takeaway coffee cups.

I’m Ruby Jones, this is 7am. See ya tomorrow.

Inheritance taxes are a feature of most advanced economies, including the UK and the US. But in Australia they haven’t been levied for 40 years, and their abolition has contributed to growing inequality in the country. Today, James Boyce on why now is the right time to restart the conversation on death taxes.

Guest: Author and contributor to The Saturday Paper James Boyce.

Background reading:

The case for a death tax in The Saturday Paper

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7am is a daily show from The Monthly and The Saturday Paper. It’s produced by Ruby Schwartz, Atticus Bastow, and Michelle Macklem.

Elle Marsh is our features and field producer, in a position supported by the Judith Neilson Institute for Journalism and Ideas.

Brian Campeau mixes the show. Our editor is Osman Faruqi. Erik Jensen is our editor-in-chief. Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio.

New episodes of 7am are released every weekday morning. Subscribe in your favourite podcast app, to make sure you don’t miss out.

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305: Death tax for booty