‘Political dynamite’: Prime Minister urged to consider inheritance taxes

A feared tax that has been implemented in other parts of the world is being floated to the government by somebody it is closely listening to.

Incoming Productivity Commission boss Danielle Wood has urged the government to have a “sensible conversation” on the option of inheritance taxes for the rich despite admitting the policy is “political dynamite”.

A respected economist, Ms Wood, who will leave her current role at the Grattan Institute to take up the new job, described her personal views as long-standing and based on concerns that the burden of taxation will increasingly fall on younger workers.

She said her personal views did not form part of any work she planned to do at the Productivity Commission for the government, unless it made a referral on tax.

“We know that there is a growing pot of wealth, sitting in the hands of older Australians that will be passed on in coming decades,’’ Ms Wood told news.com.au.

“You would set some kind of threshold for the size of inheritances and only tax above that amount.”

Ms Wood canvassed the option in a recent speech in her role at the Grattan Institute that was first reported by The Australian Financial Review on Monday.

But the incoming Productivity Commission boss conceded the idea was “political dynamite”.

“It’s just a very politically sensitive topic,’’ she said.

“I think it’s because it’s seen as kind of interfering with a personal transaction, which is sort of given out of love, and I understand the sensitivity of that.

Prime Minister Anthony. Picture: AFP

“But in a world again, where we need to raise money, we’re otherwise going to be pushing a huge burden onto future workers.”

Asked today about what level a sensible inheritance tax might kick in she suggested $1 million or $2 million, a figure that would capture many family homes in Sydney and Melbourne.

“Yeah, a house in Sydney, potentially,’’ she said.

“It’s not super rich, but you don’t want to be doing this by capturing the smaller inheritances of $50,000.”

However Ms Wood, who was a surprise appointment to the commission after the previous candidate did not take up the role, told news.com.au that her personal views were “longstanding”. She stressed that it would not form part of her new role unless the government referred the matter.

“Well, not unless we were specifically given a reference on tax,’’ she told news.com.au.

“It was very much in the context of my work at the Grattan Institute.

“I’ve said this for a long time that I think we need to raise more revenue.

“It’s very clear that the Commonwealth Government has the structural budget challenge over the longer term.

“And, you know, a world in which we are relying so much on taxes on people working … I think it makes sense to look at other ways to supplement that tax base.”

In her recent speech she called for retirees to pay a 15 per cent tax on their superannuation earnings and for a reduction in the 50 per cent capital gains tax discount.

The speech to the Economic Society of Australia was delivered on August 30, just days before her surprise appointment to lead the Productivity Commission on September 6. She will commence the new role in November.

The tax has been implemented in other parts of the world.

“At a minimum we should not be subsidising inheritances via some of the existing rules that allow the accumulated value of super tax breaks to be inherited by the next generation, as well as the exclusion of virtually all the value of the family home from the age pension asset test,’’ she said.

She said there was “simply no policy justification” for why an older household with an income of $100,000 paid the same tax as a working age household earning $50,000.

“Incomes for households over 65 had more than doubled over the past 25 years, substantially faster than the growth for households under 55. But households over 65 pay virtually no more income tax than people of that same age did 25 years ago,” Ms Wood said.

“Indeed the share of older households paying any tax fell from 27 per cent in the mid 1990s to 17 per cent pre COVID. And that has contributed to a tax system where someone’s date of birth is almost as important as their income in determining their tax contribution.”

“This unwanted fiscal inheritance will fall on the generation of Australians whose wealth has stagnated, the same generation who missed the property boom.”

Treasurer Jim Chalmers was asked about Ms Wood’s views on tax when he announced her appointment.

“Look, I think it would be strange in the extreme if I limited my choices for the PC Chair to people who have only used the exact same language to describe our economic challenges,’’ he said.

“But I have the highest possible respect and regard for Danielle Wood, and I take the views that she puts forward very, very seriously, and that’s why I think this is a terrific appointment. And so I am entirely comfortable, completely, entirely comfortable with the views that Danielle has expressed in the past on the public record. I haven’t agreed with everything that she’s said in the past, I wouldn’t anticipate I agree with absolutely everything she says in the future. But an absolutely top shelf appointment and I’m very proud of it.”