For example, British backpackers who obtain temporary jobs while visiting Australia will soon be responsible for paying taxes on this income. Tax code revisions of this type provide the government with an opportunity to increase revenue, which should ultimately help fund necessary programs.
Of course, there is always going to be controversy about the methods that are utilized, along with the reality of how the money will be allocated. A recent recommendation to revive death taxes is definitely controversial for these reasons, even if most people will not be affected by its potential implementation.
Death taxes, which are also commonly referred to as inheritance taxes, are utilized in one form or another in many countries, including the U.S., France, the U.K, Iceland and Ireland. In Australia, though, the concept of a death tax was abandoned in 1979. New Zealand also has a 0 percent inheritance tax, and changing the cultural perception of this potential moneymaker may present a very difficult uphill battle.
The Community Council for Australia is behind the current push to reinstate death taxes, but this charity lobbyist group did not come up with the idea. That distinction belongs to Ken Henry, who first discussed the idea back in 2010 while serving as the Secretary to the Department of the Treasury. It was noted at that time that the majority of OCED countries have an inheritance tax.
The Australia Institute supports the idea, but their representatives have also indicated that it may be a very hard sell. The independent think tank is involved in public policy research and analysis, and they have come to the joint decision that the only way to get taxpayers on board would be to demonstrate that everyone would actually save money while they were alive.
However, the latest version of the death tax recommendation may not save most people any money because it specifically targets the richest 1 percent of the nation. The proposed tax rate would take 35 percent of any Australian real estate inheritance that is valued at more than $5 million. This would put Australia’s death tax behind the rate of six other countries, including the top-ranked Japan, where the value of 55 percent of each applicable inheritance is forfeited to the government.
Approximately 100,000 citizens currently own a large enough estate to be eligible for the Australian proposal, and they would add a whopping $5 billion annually to the nation’s coffers. This makes a compelling financial argument for moving forward with tax reform. There are also several other important factors to consider, though, especially if Australia’s wealthy population is expected to accept this type of tax change.
A prime example is the U.K.’s exception clause, which has generated a much higher level of charitable giving than what currently exists in Australia. In fact, U.K. residents who donate their property and other assets to charity are no longer eligible for the death tax. If this were implemented in Australia, wealthy individuals could stipulate that any taxable property that is valued above $5 million is earmarked for charity. If this potential clause is used properly, their relatives would still be able to inherit up to the first $5 million in property tax-free.
It remains to be seen whether or not the Australian government can actually pass something of this magnitude into their tax laws. Although it may seem like a no-brainer because 99 percent of the country would be unaffected, it is important to remember that many of the Liberal Party voters are located in the wealthiest neighbors. In other words, if this idea moves forward, it is not likely to happen until after the election. After all, the Liberal Party does not want to risk losing critical votes by showing support for a controversial tax reform that would penalize influential voters.
