As a lightning rod for investor angst, inheritance tax is probably only rivalled by franked dividends. But new academic work suggests we have got our assumptions quite wrong about this most controversial and emotive subject.
The new study suggests Australians now have “a surprisingly high level of support for wealth transfer taxation”. Yes, believe it or not, the “ rigorous individualism” referenced in the report brings forth the startling insight that we have “a near universal lack of any bequest motive”: that’s academic speak for no desire to leave our kids anything at all.
If the paper by Dr Veronica Coram of the University of South Australia – published in the Journal of Political Science – is correct, then it’s a green light for politicians to revive inheritance taxes as a potential salve for looming budget deficits.
“Most participants simply had no objection to wealth transfer taxation: Their support was based less on reasons why these taxes should exist than a lack of reasons why they shouldn't’”, says the report.
Where on earth did this come from? Have attitudes changed so much since Liberal PM Malcolm Fraser abolished inheritance taxes four decades ago?
Many countries followed in tandem with repeals of wealth transfer taxes at that time, though it is worth noting they remain in place in the US, the UK, France, German and Japan.
According to Coram, the work builds on other recent academic surveys which found Australians of all ages indifferent to wealth transfer taxation: “It’s been a long time since anybody really looked at the issue and put it on the agenda,” she explains.
At its most contentious the report suggests two-thirds of the survey respondents thought Australia should consider reintroducing taxes on estates worth more than $3m.
Recent reports on inheritance wealth have been much less conclusive. A report on inheritance issues from Canberra’s Department of the Treasury released last year sat firmly on the fence, suggesting inheritances can be ineffective at equalising opportunities between generations, as their size and timing are not guaranteed. But it also said that inheritances could help rebalance intergenerational differences in opportunities to save for retirement.
Coram’s key point is not so much that the public will gladly wave through a revival of inheritance taxes, rather that “policy reform in this area may not encounter quite as much vehement resistance as has sometimes been assumed.”
The issue of wealth transfer is exceptionally relevant at present. Global studies, such as the recent UK-based Institute of Fiscal Studies report, show the biggest generational handover ever seen is coming down the line in the decades ahead. The largely UK focused IFS report said that average inheritances compared to lifetime incomes are likely to be twice as big for people born in the 1980s as in the 1960s.
Locally, as our tax base narrows, reports suggest over the coming decades at least $3.5 trillion of assets will be inherited in Australia. This will include superannuation, shares, investments and crucially the family home which has risen dramatically in value while the capital gains tax exemption remains in place.
On her own admission Coram says the survey is based on a limited sample of the population and wider research is required to complement the latest data.
Certainly this statement could be stress tested: “The results align with previous Australian research finding that a ‘me first ‘ individualism has largely replaced any sense of duty of passing down wealth to adult children.”
But if Coram is even half right and inheritance tax is not the explosive issue it once was, then don’t be surprised if our political leaders have a fresh go at it sooner or later.
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