Falling interest rates to a record low and the resulting rise in property values and share prices has widened the gap between the “haves” and “have-nots” in Australia.
This has led to claims that we need to investigate ways for government to raise and distribute more revenue, to make the system “fairer”.
New South Wales premier Dominic Perrottet has only been an office for a short time, but has already flagged the possibility of replacing stamp duty on property purchases with a universal land tax.
The tax would be levied on every residence, and so affect every householder. However, it would have a disproportionate negative impact on retirees, many of whom are asset rich but cash poor.
Mr Perrottet has also suggested that the federal government consider reducing the 50 per cent discount on Capital Gains Tax (CGT) for assets held for more than a year, on grounds that it would discourage property speculators.
However, the two proposals are not in sync.
Abolishing stamp duty would give property speculators a free-kick, and every proposal in the past which canvassed an effective increase in CGT found that it would not be retrospective, and so would only apply to properties acquired after the changes were legislated.
Imagine the spate of buying before the relevant changeover date.
Another revenue-raising idea is to impose death duties in Australia.
Its proponents claim that it is not fair that many wealthy people die leaving a large amount of money to their beneficiaries. In their view, a substantial death tax should be introduced to make sure the government receives part of these estates.
They point to Britain as a great example, where a standard inheritance tax of 40 per cent is charged on those people with assets above a tax-free threshold of £325,000.
For example, if your estate is worth £625,000, you would pay 40 per cent of £300,000, or £120,000.
There are certain concessions for estates left to a spouse, and the tax may reduce to 36 per cent – if at least 10 per cent of the estate is bequeathed to charity.
Any changes to the current system are not something to be rushed. For starters, if you have a death tax you must also have a gift tax, otherwise people would simply give money away before they died.
In any event, we already have significant death taxes on estates.
For example, the taxable component of superannuation is hit with a tax of 17 per cent (15 per cent plus Medicare levy) if it is left to a non-dependent.
Then there is CGT. Although this tax is not triggered by death, the liability is passed on to the beneficiaries of an estate, who pay CGT when they dispose of the bequeathed assets.
I would not be too worried that any of these proposals are likely to be introduced any time soon.
Australia has a long history of floating controversial ideas and then quickly backing away from them once a rigorous analysis is carried out and problems come to light.
Remember the Henry tax review, which was commissioned by the Rudd government in 2008 and published in 2010? The report contained 138 recommendations, most of which were ignored.
Then, in 2014, we had the 320-page Murray report, which made 44 recommendations, most of which never saw the light of day.
In 2015, the Committee for Economic Development of Australia published a comprehensive paper entitled The Super Challenge of Retirement Income Policy, which pointed out that “constant tinkering around retirement income policies makes it difficult for those planning for retirement to make informed decisions about how best to fund their retirement”.
What we really need is governments that are prepared to leave the current system alone for the foreseeable future, so that people can plan their long-term affairs with more certainty.
Article Source: www.brisbanetimes.com.au
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