Taxing death and superannuation: why I’ll be happy to pay more

Fresh talk of death duties and new superannuation taxes fuels anger, but tough decisions will be needed eventually.

Death and taxes are certainties in life, but stick them right next to each other and it fires up a fair amount of fury.

Reports last week said incoming Productivity Commission boss Danielle Wood had urged a national conversation about a tax on inheritances, plus a 15 per cent tax on superannuation in retirement, plus a reduction of the 50 per cent capital gains tax discount for investors.

She has described these ideas as “political dynamite”, and they were quickly attacked by online readers as “disgusting”, “double dipping” and “unethical”. Even Pauline Hanson had a crack, describing Ms Wood, the former CEO of think tank The Grattan Institute, as left wing and Marxist.

Any talk about taxing retirees and their families sparks a fierce and angry reaction, but Ms Wood was right on at least one level: Aussies do need to discuss the way we tax ourselves as our population ages.

In the future there will be too few workers to and too many retirees to make the current system sustainable.

People in their 30s and 40s will pay increasingly large chunks of their income to cover the benefits of retirees, who already have two and three times more wealth and usually pay zero tax on their nest egg income.

Superannuation often is a target of tax rule changes, and savers aren’t happy. Picture: iStock

Some of the fierce future arguments we can expect include:

• Whether the GST gets lifted to fund income tax for workers, because a consumption tax hits wealthier, big-spending people more.

• Should super keep its tax-free status for retired over-60s, or should those with the means be forced to pay more?

• Does Australia follow the world with death taxes, but on a higher threshold than Britain’s current 40 per cent tax on inheritance amounts above 325,000 pounds ($627,000)?

• Which generations will suffer most to pay off Australia’s massive Covid-induced national debt, or will all generations chip in?

• Should the family home remain fully exempt from capital gains tax and pension assets tests, even when worth millions of dollars?

I’m personally on the wrong side of 50 and thinking about retirement in the next decade, and I will happily pay more tax on my super savings if it helps give younger generations a financial leg-up.

More than two decades of writing about finance and investment has given me knowledge and a nest egg above the average Australian’s, although nowhere near the $1.9 million each retiree today is allowed in an account-based pension that charges zero tax on their income, capital gains or withdrawals.

The current rules allowing a tax-free retirement have only been around for about 15 years, when Peter Costello and John Howard handed massive tax breaks to seniors using the fruits of the resources boom in the mid-2000s.

It’s fair to argue that people who worked hard their lives, paid tax and planned for a retirement using the current laws should not be punished for being successful, but it’s also true that some people with means take the mickey out of the system using clever financial strategies.

If you remove emotions, ideas such as increasing the GST to tax consumption, dialling back tax breaks on retirement super, an inheritance tax on very wealthy people and treating property and investments differently all potentially have merit.

Sadly, the political will on both sides of parliament does not appear to be there to make tough calls.

At some point we will have to lose the us-versus-them mentality and generational financial warfare, and do what’s best for the country and our kids.