TIM AYRES. What We Leave Behind: The Case for Universal Inheritance, including an inheritance tax.

Economy, Housing, Infrastructure

TIM AYRES. What We Leave Behind: The Case for Universal Inheritance, including an inheritance tax.

Feb 14, 2017

Older Australians are enjoying a growing share of Australia’s wealth; the wealth of younger Australians has stagnated. Structural changes to the labour market threatens to leave more young people in low wage, precarious work than any generation before them, and they face increasing debt and declining social mobility.

Our national anthem claims that we are young and free – but it appears that millennials do not share that optimism. In a poll release last week, Deloitte found that less than one in ten young Australians they will be more financially secure than their parents, and only 4% believed they would be happier.

Similarly, research conducted by the ANU and published by Fairfax newspapers found that young Australians are more pessimistic than any other age group: nearly 45 per cent of 18 to 24-year-olds agreed or strongly agreed with the statement “I feel let down by society”, compared with 25 per cent of people aged 55 and older.

There are elements of the political and media establishment that are happy to ascribe these numbers to young people ‘whining’. But those commentators are wilfully ignoring the demographic, economic and social changes that young people face.

The Grattan Institute’s ‘Wealth of Generations’ report refers to the concept of a generational bargain as a way of addressing both intergenerational inequity and the challenges of an aging population. I believe that in order to strike a true bargain with young Australians we need to start thinking about large scale measures to address intergenerational inequality.

The issue of intergenerational inequity is complex – but a critical part of any solution is to address the nexus of housing affordability and tax reform. Housing has been a critical source of wealth for generations of Australians. Indeed, home ownership has underpinned much of our post-war economic settlement: from the welfare state to the structure of our financial system.

However, the failure of governments to properly regulate the property market, especially in our capital cities, has meant that it is now fuelled by speculative investment and unsustainable amounts of private debt. This is the direct consequence of tax arrangements that have preferred the returns of investors over affordable housing.

Fixing the perverse incentives in the tax arrangements isn’t the only measure required to bring homes back within reach of ordinary Australians – we must also increase supply, deliver on higher-density housing along public transport corridors and increase state investment in public housing – but it is crucial.

The Labor Party’s shift on negative gearing and reform of the capital gains tax is substantial and has been described as “the biggest housing affordability policy this country has seen.” At a state level, there has been a growing momentum to replace stamp duty with a progressive land tax.

A universal inheritance, a capital grant to young people funded by an inheritance tax on estates over $5 million, would be a worthy addition to these proposals.

The universal inheritance is an application of Thomas Piketty’s understanding of inequality to the specific conditions of the Australian economy, indeed the idea was proposed by Piketty himself on a recent tour. It is not simply an attempt to improve the property market; it is an attempt to address the concept of intergenerational inequality directly and fairly.

Unlike the US and much of Europe, Australia does not have any form of inheritance tax, having abolished death duties in most states during the 1970s. Internationally, inheritance taxes are an important source of government revenue and one that is believed to be critical in addressing inequality.

The Henry Tax Review endorsed the idea of an inheritance tax, and it has support from many orthodox economists; it is an efficient form of taxation that would not adversely affect productivity. However, the concept is seen as a political risk, with even the Greens removing it from their policy platform in 2011.

A universal inheritance has the capacity to negate the difficult politics of taxing inheritance by framing it as an act of direct redistribution rather than creating another form of government revenue. It is taxing the inheritance of the top 1% to spread opportunity to the next generation. It means everyone gets an inheritance, not just the children of the 1%.

The capital grant may be a blunt instrument, but it may be the only real chance that many young Australians get to increase their wealth in their mid-20s. Without free education, affordable housing or the promise of a stable career – is it any wonder that they are so unusually pessimistic?

AMWU research, conducted in 2015 showed that apprentices in the best paid manufacturing and engineering workplaces would take 11 years to save enough for a house deposit in Sydney. For an apprentice on award wages, they would never be able to save enough, and house prices have continued to dramatically outpace wages since then.

Giving young people the capacity to buy a home would not only have a profound economic effect, it would have a profound social effect. I want to live in a society that backs its young people that offers them hope and gives them the chance to build a life for themselves.

A real generational bargain would mean giving young Australians a real future. At the moment we are failing that most basic test: to give our children a better life than we have enjoyed.We can, and should, have the courage and vision to do better.

Tim Ayres is the NSW Secretary of the Australian Manufacturing Workers Union. He has been working in the union movement for over 20 years.