Australians may soon face the potential implementation of taxes on inheritances, according to incoming Productivity Commission Chair Danielle Wood. Wood argued that retirees currently pay insufficient taxes and stated that there is “simply no policy justification” for this. The Productivity Commission estimated that Australian baby boomers would pass on over $220 billion in inheritance annually before 2050, prompting Wood to call for a “sensible conversation” on the matter. To address intergenerational inequity, she proposed reducing the capital gains tax discount for retirees to 50 percent and implementing a 15 percent tax on their superannuation earnings.
Former Liberal Prime Minister Malcolm Fraser abolished Australia’s wealth tax in 1979; however, Wood argued that retirees currently pay low levels of tax and should contribute more to their superannuation. She expressed concern over the rules allowing the accumulated value of super tax breaks to be inherited, as well as the exclusion of the family home from the age pension asset test. Currently, the family home is not counted as an asset when determining pension payments.
According to The Australia Institute’s senior economist Matt Grudnoff, Australia is the only developed country without an inheritance tax. He believes that implementing one would be fair and useful in expanding the tax base. Grudnoff suggested adopting a tax-free threshold similar to the United States’ inheritance tax, which only six out of 50 states impose. Speaking of estate taxes, 12 states, including the District of Columbia, have such a tax. Grudnoff proposed that estates over $5 million could be taxed between 20 to 40 percent.
Despite these discussions, the Albanese Labor government has ruled out the possibility of implementing an inheritance tax. Treasurer Jim Chalmers stated that he does not agree with all of Wood’s proposals and emphasized the government’s focus on addressing the cost of living for Australians.
One Nation Party leader Pauline Hanson criticized Wood’s inheritance tax proposal, stating that it would not benefit Australians struggling with the cost of living. Hanson argued that individuals are already heavily taxed during their lives and taxing them again after death is unfair. She also expressed concerns about the increased tax on superannuation, as she believes it primarily benefits the government rather than the people.
Wood estimated that implementing a 15 percent tax for retirees would generate an additional $5.3 billion annually for the budget. She believes that this tax would be based on income rather than age, aligning it with the principle that income tax contributions should be income-based.
Wood, the former CEO of the Grattan Institute, is set to become the first woman to lead the Productivity Commission in over a century. Pending approval from the governor-general, she will serve as the Commission chair for five years. The Productivity Commission is tasked with providing independent research and advice to the Australian government on various economic, social, and environmental issues affecting the country’s development. Wood has a honors degree in economics from Adelaide University and a master’s degree in economics and competition law from Melbourne University.