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How economists would raise $20 billion per year

Inheritance taxes, resource taxes and an attack on negative gearing: how top economists would raise $20 billion per year





Peter Martin, Crawford School of Public Policy, Australian National University

Asked to find an extra A$20 billion per year to fund government priorities like building nuclear submarines and responding to climate change, Australia’s top economists overwhelmingly back land tax, increased resource taxes, an attack on negative gearing and extending the scope of the goods and services tax.

The 59 leading economists surveyed by The Conversation and the Economic Society of Australia were asked to pick from a list of 13 options (many of them identified in the government’s 2022-23 Tax Expenditures and Insights Statement) and reply as if political constraints were not a problem.

The economists chosen are recognised as leaders in their fields, including economic modelling and public policy. Among them are former International Monetary Fund, Treasury and OECD officials, and a former member of the Reserve Bank board.

Asked to choose tax measures on the basis of efficiency – minimising the economic damage the extra taxes or tightening of tax concessions would do – 40% chose increased or new taxes on land, while 39% choose increased resource taxes.



International consultant Rana Roy said every major economist in every strand of modern economics had found taxes on the use of land and natural resources to be the least damaging way of raising money.

This was confirmed in Hong Kong, which charged for the use of crown land; in Norway, which heavily taxed oil and gas resources; and in countries such as Australia, which charge for the use of broadcast spectrum.

Former OECD official Adrian Blundell-Wignall said Australia’s natural resources were the birthright of every Australian. It was time for a resource rent tax along the lines of the one introduced by the Rudd and Gillard governments and abolished by the Abbott government in 2014.

Blundell-Wignall said politicians should ignore the usual hysteria that arose whenever the idea was discussed.

Centre for Independent Studies economist Peter Tulip said he would lump income from inheritances in with income from changes in land value. In both cases the income was unexpected, undeserved, and not compensation for sacrifice. And it disproportionately went to the already fortunate.

Negative gearing an ‘easy win’

A quarter of those surveyed backed winding back the ability to negatively gear (write off against tax) expenses incurred in owning investment properties, a concession costed by Tax Expenditures Statement at $24.4 billion per year.

Blundell-Wignall said negative gearing should have been wound back years ago. Few other countries allowed it, and it contributed to the build up of exposure to property in Australia’s banking system and financial risk as interest rates climbed.

University of Sydney economist James Morley described getting rid of negative gearing as an “easy win”. There were better ways to support home building.

Independent economist Saul Eslake said while he was inclined to extend capital gains tax to the sale of high-end family homes, the problem with the idea was that it might allow owners to write off against tax their mortgage payments (as is the case for investors who negatively gear), encouraging even larger mortgages.

One quarter of those surveyed wanted to broaden the scope of the goods and services tax (at present it excludes spending on education, health, childcare and fresh food) and one fifth wanted to increase the rate, pointing out that a 10%, it was low by international standards.

‘Unfair’ super concessions and tax-free inheritances

Asked to choose measures on the basis of equity – not treating similar people differently – 52% backed inheritance taxes, 37% backed winding back superannuation tax concessions and 32% backed increased resource taxes.

None would broaden the GST on equity grounds, and only 3.4% would increase its rate on equity grounds.



Grattan Institute chief executive Danielle Wood said two-thirds of the value of super tax breaks went to the top fifth of income earners, who are already saving enough for their retirement and would do so without tax concessions.

Wood said the government should go further than the measures taken against super accounts worth more than $3 billion announced in February.

The University of Adelaide’s Sue Richardson said super concessions had a negative impact on budget revenue, amounting to tens of billions per year. They were used for tax minimisation by high earners who obtained expensive advice.

Missing fixes: Stage 3 and a carbon tax

Guyonne Kalb of the University of Melbourne said the most important tax measure for fairness was one not listed as an option: scrapping the legislated “Stage 3” tax cuts for high earners, due to take effect in 2024.

The tax cuts scheduled for people earning between $120,000 and $200,000 would not have much or any positive impact on Australia’s labour supply and would cost the budget more than $100 billion in their first seven years.

Three panellists, Frank Jotzo, Michael Keating and Stefanie Schurer, said they would have selected “carbon pricing to raise revenue” had it been an option.

Jotzo said if Australia fully taxed emissions at $100 per tonne, the revenue would be around $15 billion per year from electricity, $18 billion from industry, and $9 billion from transport – very large sums in relation to other options.

Schurer would also take away all subsidies to fossil fuel industries. In 2021-22 measures that wholly, primarily or partly assisted fossil fuel industries cost federal, state and territory governments $11.6 billion.

If the government needed $20 billion per year, it could raise around half from fossil fuel subsidies alone.


Individual responses:

The Conversation

 

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Responses (59)


 

Peter Abelson

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back superannuation tax concessions Broaden the set of goods and services captured by the GST Equity picks: Wind back superannuation tax concessions Introduce or increase land taxes (possibly with cut in stamp duty) Introduce inheritance taxes

Efficiency comments: Taxes on any of these three categories are unlikely to have significant negative production effects. But the same comment applies to some of the other categories. Equiity comments: Generally, most of the revenue from these three taxes would be levied on more affluent households. But, again, there are other equitable options.


 

Garry Barrett

Efficiency picks: Increase resource taxes Wind back deductions for negatively geared properties Wind back superannuation tax concessions Equity picks: Wind back superannuation tax concessions Introduce inheritance taxes Increase resource taxes


 

Nicole Black

Efficiency picks: Broaden the set of goods and services captured by the GST Introduce or increase land taxes (possibly with cut in stamp duty) Increase the GST Equity picks: Wind back superannuation tax concessions Increase the corporate tax rate, Wind back deductions for negatively geared properties


 

Harry Bloch

Efficiency picks: Wind back deductions for negatively geared properties Increase resource taxes Wind back superannuation tax concessions Equity picks: Wind back deductions for negatively geared properties Wind back superannuation tax concessions Increase resource taxes

Efficiency comments: In considering issues of economic efficiency it is important to look beyond immediate impacts on the allocation of scarce resources. Taxation impacts on the health and well-being of society, affecting worker productivity in the short run as well as family formation and population growth longer term. Shifting the impact of taxation on the working population (who have limited access to tax concessions) to those living off the proceeds of capital (with the tax concessions identified in my choices above) should contribute to a happier, healthier and more productive labour force. It may also encourage a shift from rentals to owner-occupied housing. Equity comments: As I explained in my response to the efficiency question, the distinction between efficiency and equity is overblown. It is widely used by apologists for capitalist elites to justify policies that are not only inequitable but detrimental to long-run economic development.


 

Adrian Blundell-Wignall

Efficiency picks: Broaden the set of goods and services captured by the GST Wind back deductions for negatively geared properties Increase resource taxese Equity picks: Wind back deductions for negatively geared properties Tax windfall profits Increase resource taxes

Exempting politically-sensitive goods and services is arbitrary and inefficient. Encouraging housing investment via negative gearing should have been dealt with years ago. It has contributed to the build up of exposure to property in the banking system--financial risk as interest rates rise. Few countries do this. Political capture is the main impediment to efficient policy in this area. Resources under the ground are the birthright of every Australian. A Resource Rent Tax (RRT) should apply. In Norway close to 100% of the profits of Equinor are poured into their sovereign wealth fund--which is what any resource-rich country should do. When a Norwegian is born they have a birthright of USD221,000 (AUD329,000). Every Australian has an equivalent average birthright of just AUD9400 in the Future Fund. Norway's Equinor is no less efficient than BHP, RIO etc. It's time for a RRT. This should be implemented with a broadened mandate for the Future Fund to invest the proceeds in energy transition. Politicians should ignore the usual hysteria that comes forth when this is discussed.


 

Alison Booth

Efficiency picks: Wind back deductions for negatively geared properties Increase resource taxes Tax windfall profits Equity picks: Tax windfall profits Wind back superannuation tax concessions Increase resource taxes


 

Robert Breunig

Efficiency picks: Increase resource taxes Introduce inheritance taxes Introduce or increase land taxes Equity picks: Increase resource taxes Introduce or increase land taxes (possibly with some reduction of stamp duty) Introduce inheritance taxes


 

Markus Brueckner

Efficiency picks: Introduce inheritance taxes Equity picks: Introduce inheritance taxes


 

Matthew Butlin

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back the capital gains exemptions on the family home Broaden the set of goods and services captured by the GST Equity picks: Introduce inheritance taxes Wind back superannuation tax concessions Wind back the capital gains exemptions on the family home


 

David Byrne

Efficiency picks: Tax windfall profits Increase the GST Wind back Jobseeker or pension payments Equity picks: Wind back franking credits Introduce inheritance taxes Wind back deductions for negatively geared properties


 

Lisa Cameron

Efficiency picks: Tax windfall profits Wind back deductions for negatively geared properties Wind back superannuation tax concessions Equity picks: Wind back superannuation tax concessions Introduce inheritance taxes Wind back deductions for negatively geared properties


 

Fabrizio Carmignani

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Equity picks: Wind back franking credits Wind back deductions for negatively geared properties Introduce inheritance taxes

Efficiency comments: Previous studies from the Treasury show that a broad-based land tax has a relatively low marginal excess burden and hence, in this respect, it is more efficient (or less inefficient) than other taxes. Conversely, stamp duties tend to have a relatively high marginal excess burden. On this basis, the introduction or increase of land taxes, accompanied by a reduction of stamp duty, seems to me as the most efficient way to go. As additional measures I suggest winding back franking credits and rental deductions. Equity comments: An inheritance tax can generate large revenues while achieving greater equity. Clearly, the extent to which this happens will depend on the design of the tax and the elasticity of bequests to the tax rate. Under reasonable parameterisations, an inheritance would not seem to generate large reductions in pre-tax bequests, but it would generate potentially large extra revenues, which supports the proposal to introduce an inheritance tax.


 

Bruce Chapman

Efficiency picks: Tax windfall profits Equity picks: Tax windfall profits


 

Melinda Cilento

Efficiency picks: Increase the GST Wind back deductible work-related expenses, Broaden the set of goods and services captured by the GST Equity picks: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back franking credits (described in the Tax Expenditure Wind back superannuation tax concessions

Efficiency comments: There is very broad agreement on the efficiency benefits of these measures, they would be relatively easy to implement, but for the political economy implications. Equity comments: Fundamentally we need to rethink the concessional tax treatment of different sources of investment income. Moving to a dual income ? investment income and labour income ? approach could improve equity outcomes.


 

Ken Clements

Efficiency picks: Broaden the set of goods and services captured by the GST Wind back the capital gains exemptions on the family home Wind back deductions for negatively geared properties

Equity is such a slippery concept that it means anything goes when it comes to public policy. Why is my personal option of equity any better/worse than yours?


 

Deborah Cobb-Clark

Efficiency picks: Broaden the set of goods and services captured by the GST Equity picks: Tax windfall profits Wind back superannuation tax concessions Introduce inheritance taxes


 

Lin Crase

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back deductions for negatively geared properties Equity picks: Wind back the capital gains exemptions on the family home Wind back deductions for negatively geared properties Introduce inheritance taxes

Efficiency comments: Like most real-life choices, this issue is complicated by the path dependencies of previous choices. Ideally, taxes should be targeted at activities that won't materially change as a result of the imposition of the tax. However, because some 'free kicks' have been built into the system, removing them also makes its way onto this list. The upshot is that some of these choices will cause an adjustment to behaviour, but they are viewed as least harmful compared to the alternatives. Equity comments: Regrettably, we are now in a situation where poverty is substantially inter-generational so measures that span generational inequity are required to make headway on this front.


 

Janine Dixon

Efficiency picks: Wind back the capital gains exemptions on the family home Increase resource taxes Introduce or increase land taxes (possibly with cut in stamp duty) Efficiency picks: Wind back superannuation tax concessions Introduce or increase land taxes (possibly with cut in stamp duty) Increase resource taxes

Efficiency comments: Taxes are generally most efficient on fixed factors, so land and resource taxes are a priority here. The capital gains exemptions on the family home skew investment towards owner-occupied housing and away from everything else which is why I have chosen it. From a political or social angle though it is not the best way to raise revenue. Equity comments: Superannuation tax concessions disproportionately benefit the wealthy and should be wound back. I haven't said the same for winding back negative gearing deductions because the costs would be passed on to renters. I haven't chosen inheritance taxes because this creates a minefield of tricky incentives where the tax could be avoided by transferring funds before dying. This leaves the elderly in a vulnerable position where they might be coerced into giving up their assets too early, because who can predict when they are going to die?


 

Brian Dollery

Efficiency picks: Introduce inheritance taxes Equity picks: Broaden the set of goods and services captured by the GST

GST has the best efficiency characteristics of the options offered.


 

Uwe Dulleck

Efficiency picks: Wind back deductions for negatively geared properties Increase the GST Introduce inheritance taxes Equity picks: Wind back superannuation tax concessions Wind back franking credits Introduce inheritance taxes

Increasing government revenue is always a challenging topic but an important one to have, particularly in the post-COVID time where budgets have been strained. Politically difficult, but easy to implement would be increases of the GST (which is still comparatively low if compared internationally). Given the international comparisons I would not expect major negative impacts. Even though GST increases are theoretically questionable with respect to how they affect rich and poor people, in reality (looking at the data) it seems to be relatively equitable to raise revenue this way. The equity argument would be strongest for the introduction of inheritance taxes. A lot of wealth is passed on between generations in Australia, taxing this transfer is in my eyes sensible and can be acchieved without a too dramatic effect on (small) businesses in Australia. Removing deductions for negatively geared-properties wiould not only generate revenue but would be likely to lead to efficiency gains for Australia. The deductions subsidise Australians to invest in unbalanced portfolios, overweighting real estate, leading to (again in international comparison) overpriced housing (and limited access to family homes for people entering the market).


 

Craig Emerson

Efficiency picks: Introduce inheritance taxes Increase resource taxes Introduce or increase land taxes (possibly with cut in stamp duty) Equity picks: Introduce inheritance taxes Introduce or increase land taxes (possibly with cut in stamp duty) Increase resource taxes

Efficiency comments: These three taxes, properly designed, can be neutral; that is, they don't create inefficiencies that weaken the economy and reduce the tax base. Equity comments: These three taxes collect revenue from those with the greatest capacity to pay while exempting the poor.


 

Gigi Foster

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back the capital gains exemptions on the family home Equity picks: Increase resource taxes Introduce inheritance taxes Tax windfall profits

Efficiency comments: Since the time of Henry George, who recognised that land could not run away, and that it changed in value in response to economic conditions rather than only in response to its owners' efforts, we have recognised in economics that taxes on unimproved land are some of the most efficient around. The Henry Tax Review recognised this as well. The barrier to implementation is mainly political, with some fixed costs of the transition from stamp duties and other transaction taxes to land taxes, and also ongoing costs of a land-tax-based system, that fall on the shoulders of particular (landed and hence able to lobby) groups. Let me add that the presumption of this question ? that we must raise taxes in order to fund expenditures on the particular listed things ? is not a statement that everyone would agree with. For example, I do not see it as obviously in Australia's interests to fund a transition to "net zero". Instead of taking it as given that it is, we should consult hard data, not just output of computer simulations, on what tangible benefits that expenditure will provide to Australia, and compare these benefits to the size of the expenditure being proposed. Equity comments: The resource super-profits tax, again something advocated in the Henry Tax Review, died for political reasons ? like the land tax ? but would have taxed the excess profits earned by MNCs using Australia's richesse to enrich their management and shareholders, rather than to enrich Australia. Returning the revenue of such a tax to the Australian people directly would be a progressive move. Note that to achieve the objective mentioned in the question of "reducing the burden on less-advantaged groups", technically (if the "burden" referred to is an absolute one, not a relative one) one would have to couple any new tax (like a resource super profits tax) with some sort of tax relief ? which could be for example to make child care free (child care fees are like a tax on wages for workers). Child care is a policy area in which Australia is woefully behind our peer nations. A universal basic child care system must be designed carefully, with a focus on reductions in red tape and provision of meaningful consumer choice, but other nations have done it and it would be a positive step towards intergenerational equity. So too would inheritance taxes (after a certain threshold, like say $2 million, and applied to real estate and other assets as well as cash holdings) and a few other of the options above. Superannuation in particular is a rort and treats wage-earners like untrustworthy children. The inability of poor families to use the money in their super accounts to finance necessary expenditures today is part of what keeps these families poor. We should instead make the aged pension scheme more generous and release control of retirement savings back to workers themselves, retaining the tax advantages of making retirement contributions in order to encourage them.


 

John Freebairn

Efficiency picks: Tax windfall profits Introduce or increase land taxes Increase the GST

Replacing stamp duty on transfer of property, and current narrow base land tax, with an annual broad base land tax offers large efficiency gains and better utilisation of the stock of property. A revenue-neutral reform package would also provide horizontal equity benefits. A positive-revenue reform package would act as a non distorting wealth tax. Only gradually increase the replacement broad base annual property tax above the aggregate revenue neutral rate in order to cushion the lower asset price increase of property over a transition period. Addition of a business income windfall profits tax, such as an allowance for equity ("ACE"), captures not only a share of resources rent income, but also a share of monopoly profits and the quasi-rents of successful innovations. A larger GST, say along the lines of the New Zealand model, has lower distortion costs than an increase of income tax, and would bring Australia more in line with other western economies (except the US).


 

Lata Gangadharan

Efficiency picks: Wind back superannuation tax concessions Increase resource taxes Increase the GST Equity picks: Introduce inheritance taxes Introduce or increase land taxes (possibly with cut in stamp duty) Tax windfall profits

Efficiency comments: The cost effectiveness of the selected policies is likely to be high in terms of raising revenue. Equity comments: Two general guidelines: 1. In terms of vertical equity, the least equitable is assets or wealth, then income, and last consumption. 2. The broader the tax base, the greater is horizontal equity. Reform of property taxes, and more so if a progressive rate, provides large horizontal equity gains; property owners with similar asset values pay the same annual tax regardless of how often they change property ownership. This contrasts with the inequity of stamp duty which results in much higher tax burdens for those who buy and sell more frequently than average and lower tax burdens over time than those who buy and sell less frequently than the average. An inheritance tax, as a form of wealth tax, results in greater vertical equity in the sense of material wealth for all regardless of parental income and wealth. Addition of a general windfall profits tax on business income would improve both vertical and horizontal equity.


 

RICHARD HOLDEN

Efficiency picks: Broaden the set of goods and services captured by the GST Equity picks: Wind back the capital gains exemptions on the family home

Other than increasing the GST, every other option on the list is somewhere between very and extremely inefficient. The GST base could be broadened and the rate raised and not be regressive by using the Dixon-Holden "Progressive GST" plan (Dixon and Holden, "From Free to Fair Markets", Oxford University Press, 2022).


 

David Johnston

Efficiency picks: Broaden the set of goods and services captured by the GST Introduce or increase land taxes Increase resource taxes Equity picks: Introduce or increase land taxes (possibly with cut in stamp duty) Increase resource taxes

Efficiency comments: Land value taxes are considered to be highly efficient because they create little distortion of economic behaviour and incentives (with stamp duty being the opposite). The efficiency associated with a resources rent tax has similarly been found to be high (especially considering the foreign owners share the burden). Though probably less efficient than land and resource rent taxes, broadening the GST would also be relatively efficient. Equity comments: Given that a relatively high proportion of low-income people do not own their home, a land tax would be equitable (as defined in the question). Similarly, low-income people are less likely to be shareholders of mineral firms, and so a resources tax should affect them little.


 

Frank Jotzo

Efficiency picks: Tax windfall profits Introduce or increase land taxes (possibly with cut in stamp duty) Wind back deductions for negatively geared properties Equity picks: Wind back deductions for negatively geared properties Tax windfall profits Wind back superannuation tax concessions

Efficiency comments: There are many ways to raise more tax revenue efficiently, especially by cutting tax concessions; resource taxation also has big gaps. Not on the list here is an important unused option: carbon pricing that raises revenue. If Australia fully taxed emissions at $100/tCO2-equivalent then the revenue would be around $15 billion per year from electricity, $18b per year from industry and stationary industry, and $9 billion per year from transport. Reference points: EU emissions trading now nearly $150/t with auctioning revenue greater than 30b euros per year; Australia's planned maximum price in the safeguard mechanism is $75 per tonne, but there is no plan to create any fiscal revenue. Equity comments: Many of Australia's tax concessions predominantly benefit high income earners and/or relatively wealthy people. In the interest of equity and also efficiency they should be reduced or eliminated.


 

Guyonne Kalb

Efficiency picks: Wind back the capital gains exemptions on the family home Wind back deductions for negatively geared properties Introduce inheritance taxes Equity picks: Wind back deductions for negatively geared properties Wind back superannuation tax concessions Wind back franking credits

Efficiency comments: Although these actions would have an impact on what people do, in my view these would be positive impacts. The housing market needs an overhaul so that it becomes more broadly affordable and is not viewed as a way to make money. I can see no reason for subsidising people to invest in the property market through negative gearing. Originally, the thinking behind this may have been a hope that it would ensure sufficient numbers of affordable rental properties would be available, but that does no longer seem to work (if it ever worked). Although I selected inheritance taxes, this cannot be done in isolation. For this to work, other intra-family transfers of money would also need to be taxed (egifts over a certain amount to children, family trusts, etc.) otherwise people will just change the way intra-family transfers are made. Equity comments: These all tend to be taxes faced by people on higher incomes who can afford to pay more tax, so that this would ensure a more narrow income distribution and less inequality after tax (compared to before tax income distribution and inequality). However, the most important tax policy (in my view) is not listed amongst the options from which we could choose. Not introducing the planned reduction in tax rate (from 37% to 32.5%) for individuals earning between $120,000 and $200,000 would avoid the inequitable step of providing tax relief to people who do not need it (with the largest reductions in tax provided to people earning $200,000 or more) while lower-income Australians (and especially those on allowances and pensions) are struggling with the cost of living. Letting this policy go ahead would increase inequality and reduce tax revenue that could have been used to support people in need. Reducing tax for people at this income level will also not have much/any positive impact on labour supply; if we want to encourage labour force participation and hours worked, research has shown that we need to reduce tax at the lower end of the income distribution not at the high end.


 

Michael Keane

Efficiency picks: Increase resource taxes Introduce inheritance taxes Equity picks: Increase resource taxes Introduce inheritance taxes

In my view the most efficient way to raise revenue would be resource and inheritance taxes. However, to move towards a more efficient tax system it is both economically and politically necessary to pair tax increases with tax cuts in other areas. Increases in resource and inheritance taxes should be combined with cuts in income taxes (to encourage labor supply). More generally, the government should go back to the Henry commission recommendations. Back then the government decided to pick just one of those recommendations ? the mining tax ? and look at the disaster that caused. A resource tax is not politically feasible unless it is combined with tax cuts in other areas. And from an economic point of view, the whole point of making the tax system more efficient is that raising some rates allows you to lower the overall tax burden by cutting other rates. People can't see that if you only talk about increases.


 

Michael Keating

Efficiency picks: Introduce inheritance taxes Tax windfall profits Equity picks: Introduce inheritance taxes Tax windfall profits

In addition, to introducing inheritance taxes I favour introducing a carbon tax. This would improve the incentives to reduce carbon pollution.


 

Geoffrey Kingston

Efficiency picks: Broaden the set of goods and services captured by the GST Equity picks: Wind back the capital gains exemptions on the family home

Efficiency comments: Incentives to work, save and invest are the least weakened by consumption taxes. Equity comments: Some of the usual suspects for "equitable" taxation are not so equitable in the long run.


 

Michael Knox

Efficiency picks: Broaden the set of goods and services captured by the GST Increase the GST Equity picks: Increase the GST

Equity comments: GST is the more efficient way to raise government revenue than taxes on savings or investment. Governments over many years have learned the hard way that taxes on saving and or investment inevitably lead to a fall in investment. This fall in investment leads to a fall in employment growth and output growth. This then leads to an endless cycle of declines in revenue. The best way to avoid this damaging long term decline is to directly tax consumption . This is most efficiently done by raising or broadening GST Equity comments: The alternatives to GST outlined above are really a series of false short term choices. In the short term they provide revenue but in the medium and long term they reduce revenue which might otherwise be available for welfare spending.


 

Guay Lim

Efficiency picks: Broaden the set of goods and services captured by the GST Increase the GST Equity picks: Tax windfall profits Introduce inheritance taxes


 

Elisabetta (Lisa) Magnani

Efficiency picks: Introduce inheritance taxes Equity picks: Introduce inheritance taxes

Wealth inequality has been persistently high in Australia, and it has increased in recent times. Not surprisingly, inheritances are also unequally distributed across households and they contribute to the intergenerational transmission of wealth inequality. Across OECD countries wealth and inheritance taxations are rather unequal and some country-specific provisions have narrowed inheritance tax bases rather than enlarging them since the 1970s ("Inheritance Taxation in OECD Countries", 2021). In Australia, estate or inheritance taxes have been abolished since 1980. There is currently high intensity political resistance to reinstating those. The increasing pressure on public funds to address climate change, international military obligations and the recovery from the pandemic requires a mature consideration of wealth and inheritance taxation to increase tax revenues, efficiency and fairness. Because of the lack of popularity of these taxes, governments may need to work to enrich the public debate on the benefits of these changes and gain public acceptability of inheritance and wealth taxation.


 

Warwick McKibbin

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back superannuation tax concessions Broaden the set of goods and services captured by the GST Equity picks: Introduce or increase land taxes (possibly with some reduction of stamp duty) Tax windfall profits Wind back superannuation tax concessions


 

Flavio Menezes

Efficiency picks: Increase the GST Introduce or increase land taxes (possibly with cut in stamp duty) Tax windfall profits Equity picks: Introduce inheritance taxes Introduce or increase land taxes (possibly with cut in stamp duty) Tax windfall profits

Efficiency comments: Taxes on land and windfall profits are less likely to result in tax-induced reductions in economic efficiency compared to other types of taxes. This is because land is an immobile resource, meaning that its supply cannot be easily increased or decreased in response to changes in tax rates. Therefore, a tax on land does not significantly affect the quantity of land available for use, nor does it influence the incentives of landowners to use their land productively. Similarly, windfall profits are typically unexpected gains that arise from factors outside of a business's control. As such, a tax on windfall profits is unlikely to deter businesses from investing or engaging in productive activities, as these profits are not considered part of their normal profit expectations. Consumption taxes are less distortionary than other types of taxes, such as income or corporate taxes, as they do not directly discourage individuals or businesses from engaging in productive activities. Equity comments: There are obvious equity issues with increasing the GST ? consumption as a share of income decreases with income. Inheritance taxes are clearly distortionary , but are more equitable ? for example they could fund the costs associated with meeting the needs of an ageing population.


 

James Morley

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back deductions for negatively geared properties Increase resource taxes Equity picks: Wind back franking credits Wind back deductible work-related expenses

Efficiency picks: Land taxes are very efficient ways to tax wealth. For one thing, they are hard to evade. Also, they are certainly better than stamp duties in allowing more flexibility for people to move when needed (including downsizing when not being able to refinance a mortgage at higher interest rates). I would also think a resource tax would be efficient and help offset and minimize damage done by resource extraction and use. Getting rid of negative gearing seems a perennial easy win. There are better (more efficient) ways to incentivise and support the building of new housing units. Equity picks: There must be fairer ways to mitigate double taxation of capital than the franking credit approach which very directly treats foreign and domestic shareholders differently. Harmonizing with overseas treatment of dividend taxes would seem like a good starting point. As far as I can tell, tax deductions for work-related expenses seem to somehow favour ute dealers. No doubt other groups benefit disproportionately from these tax deductions too. Some reform here or at least not having it as a perennial vote-buying lever of tax policy would make sense.


 

A Abigail Payne

Efficiency picks: Increase the corporate tax rate Tax windfall profits Increase resource taxes Equity picks: Increase resource taxes Increase the corporate tax rate


 

Ben Phillips

Efficiency picks: Wind back superannuation tax concessions Wind back the capital gains exemptions on the family home Increase resource taxes Equity picks: Increase resource taxes Wind back superannuation tax concessions Wind back the capital gains exemptions on the family home

Efficiency comments: Several are good options but in terms of least harm to the economy it is very hard to judge which would be best as the evidence is to me not that clear and more based on theory than practice. With that said, I see little harm in modest super tax concession reductions. This would largely just mean that wealthy persons will pass on less wealth than they otherwise would to the next generation. I'd go for a combination of several such as land tax and or greater taxation on the place of principal residence, resource tax and super concessions. Broadening GST is also a reasonable thing to do with appropriate benefit increases for compensation. As it currently stands franking credits need reform with regard to taxable income rather than necessarily removing them in their current form. The current system means that high wealth retirees have large super balances but their taxable income is low while their actual income is high as super in retirement is not or very lightly taxed. Equity comments: Similar reasoning for the efficiency question. I think these reforms would both be efficient and equitable. Some are not independent from each other, for example greater taxation of super and the place of principal residence would lead to lower inheritances (although likely quite modest).


 

Alison Preston

Efficiency picks: Increase resource taxes Introduce inheritance taxes Wind back superannuation tax concessions Equity picks: Increase resource taxes Wind back superannuation tax concessions Introduce inheritance taxes


 

Mala Raghavan

Efficiency picks: Introduce inheritance taxes Increase resource taxes Tax windfall profits Equity picks: Tax windfall profits Increase resource taxes Introduce inheritance taxes

Efficiency comments: Given the purpose of the fund is to support net zero emissions and pay for the acquisition of the submarines, my choice is to increase the resource tax, tax on windfall profits and introduce an inheritance tax. Based on the ASIC's environmental criteria, multinational corporations and mining companies contributing to greenhouse gas emissions should be held more responsible for achieving the net zero goals. Australia could reintroduce the inheritance tax to increase the government's revenue. Like in the UK, the inheritance tax could be charged on the part of that estate above a specified threshold. Equity comments: My choices are similar for both "efficiency" and "equity". Generally, broadening the tax base and taxing all forms of income would help increase tax efficiency, while appropriately targeted tax expenditures would assist in achieving equity. Most importantly, "tax expenditures" should not be an easy target for exploitation, attracting loopholes and creating unnecessary revenue leakages for the government.


 

Alicia Rambaldi

Efficiency picks: Wind back superannuation tax concessions Wind back deductions for negatively geared properties Wind back the capital gains exemptions on the family home Equity picks: Wind back the capital gains exemptions on the family home Wind back superannuation tax concessions Wind back deductions for negatively geared properties

Efficiency comments: The housing sector: The tax structure and regulatory environment of the housing market in Australia is complex and runs across all three levels of government. It is for this reason that policy options must be part of a well-designed tax policy mix. Deductions and capital gain exemptions are the domain of the Federal Government. Despite billions of dollars foregone by taxpayers due to our current tax deductions and capital gain exemptions, our housing stock is not meeting the needs of our society. There should be housing related deductions and exemptions that provide attractive investment options for individuals, but they must lead to a net increase in the supply of energy-efficient and affordable housing. It is also the case that some exemptions to capital gains are very costly to the budget, and in addition, it is unclear that they lead to the correct outcome. For example, fully exempting capital gains on the main residence is regressive and there is no clear evidence (internationally) that suggests they raise homeownership rates (OECD). Stamp duties affect residential and labour mobility (OECD). While the federal government cannot directly raise funds by lowering stamp duty taxes and introducing urban land taxes, incentives for a nationally consistent approach that moves towards this model should be explored. Superannuation: Through our superannuation we own shares in national and international big tech and manufacturing companies, banks, real estate and more. Our savings in super, even if small, earn the same rate of return as those of big investors. Australia is a world leader in this area. Very few countries have well-designed systems that allow an aging population to support their financial needs in retirement. Super will benefit future generations of taxpayers by lowering the budget costs of the pension system. The budget forgoes billions due to super tax concessions. This is not a problem in itself; however, it is a problem if superannuation becomes a conduit to divert earnings to avoid paying taxes. Tax concessions need to be proportional to the balance in the account. Equity comments: The housing sector: The tax structure and regulation of the housing market in Australia is complex and all three levels of government are part of the mix. It is for this reason that policy options must be part of a well-designed tax policy mix. Deductions and capital gain exemptions are the domain of the federal government. The beneficiaries of the current design of deductions, via negatively gearing investment properties, are much more likely to be people with above median income. In 2019?20, 79% of the tax reduction went to people with above median income (Treasury, based on ATO data). These deductions benefit people across most age groups, including a substantial share in the 30 to 59 age range, which is why we want to maintain the attractiveness of investing in housing. However, it is imperative that we do this in a way that it increases the supply of housing (including social housing). Deductions and exemptions (e.g. capital gain) should encourage the supply of new, energy-efficient housing, and promote efficiency in the use of the existing housing stock to have the greatest impact on housing affordability. Equity is improved by using recurrent taxes based on updated property values. While the federal government cannot directly raise funds by lowering stamp duty taxes and moving to taxing urban land, incentives towards this tax option could be explored. Stamp duty affect residential and labour mobility (OECD), and therefore low and middle-income, and younger workers are disproportionally affected. Superannuation: Through our superannuation we own shares in national and international big tech and manufacturing companies, banks, real estate and more. Our savings in super, even if small, earn the same rate of return as those of big investors. Very few countries have well-designed systems that will allow an aging population to support their financial needs in retirement. Concessional taxation of superannuation contributions in its present form benefits more people above the median income. In 2019-2020, 30% of the benefit went to people in the top income decile. The flat 15% rate of tax is a larger concession on superannuation contributions for high income earners in the higher tax brackets. This is even more skewed when we consider concessional taxation of superannuation earnings (Treasury based on ATO data).


 

Sue Richardson

Efficiency picks: Increase the GST Equity picks: Wind back superannuation tax concessions

Efficiency comments: The GST already exists. A broad based tax on consumption favours production, savings and investment and has relatively small opportunity for avoidance. Equity comments: Superannuation tax concessions are weighted heavily in favour of those who can save a substantial amount. They are also having a large, negative, impact on the budget revenue. They are being used as a tax minimisation strategy by those for whom it pays to employ expensive tax advice.


 

Leonora Risse

Efficiency picks: Broaden the set of goods and services captured by the GST Introduce or increase land taxes (possibly with cut in stamp duty) Wind back superannuation tax concessions Equity picks: Wind back deductions for negatively geared properties Introduce inheritance taxes Increase resource taxes

Efficiency comments: One purpose of the tax and transfer system is to incentivise activity that is beneficial (that we want people to do more of) and discourage activity that is detrimental (that we want people to do less of). And efficiency in policy design is about ensuring that transfers and concessions, to achieve the incentive effects, go to the people who have the most to gain from them. Superannuation tax concessions are an example of a policy setting that is designed to incentivise saving for retirement (a beneficial activity), but where the distributional analysis indicates these concessions are flowing disproportionately to the cohort who have lowest marginal gain from such benefits. The Tax Expenditure Statement reports that 30% of super concessions benefits are going to the highest income decile. A shift from stamp duty to land tax can also facilitate greater efficiency by removing impediments to mobility (for example, making it more feasible for people to move around for better jobs or more economical living arrangements when they circumstances change). There is scope for current exemptions to GST to be reviewed, in ways that can broadens the tax base more towards consumption activity, and to be less dependent on income tax, which would also constitute an efficiency improvement. The list of options on of "how to raise more money in tax" is still very limited in scope, and does not acknowledge the role of productivity-enhancing investments (such as expanding care services to enable more women and carers to expand their participation in the paid workforce over the long-run). Such investments can boost tax revenue through generating higher income and more efficient use of skills, flowing to higher income tax, consumption tax, and less dependency on welfare and government services. We shouldn't limit ourselves to assuming that "raising revenue" equates only to raising taxes or cutting spending. Equity comments: Wealth begets wealth. A thriving economy will provide incentives and rewards for people to reap the returns for their hard work, innovation and entrepreneurial risk-taking, but policy mechanisms can also have the effect of enabling wealth accumulation to compound in ways that are not reflective of effort and entrepreneurship. This can mean that a person's existing access to opportunities, wealth, assets and resources ends up determining their future life outcomes, rather than their capabilities and effort. There are opportunities to re-evaluate tax and transfer settings to consider how they perpetuate this uneven playing field. For example, inheritance taxes (while sure to be controversial and unpopular) offer a mechanism against the intergenerational transfer of wealth and therefore more opportunity for economic mobility. Winding back deductions on negatively-gearing is a mechanism to prompt investors to look at asset markets other than housing for investment opportunities, which can potentially free up more properties for first-home-buyers and owner-occupants and improve housing affordability.


 

Rana Roy

Equity picks: Wind back the capital gains exemptions on the family home Increase resource taxes Introduce or increase land taxes (possibly with cut in stamp duty) Equity picks: Increase resource taxes Wind back the capital gains exemptions on the family home Introduce or increase land taxes (possibly with cut in stamp duty)

Efficiency comments: On the criterion of allocative efficiency, the taxation of economic rent ? the rent derived from gains in the unimproved value of land, including land used for owner-occupied housing, from scarce natural resources, and from equivalent monopoly positions ? is the single most suitable source of public revenue. This is the conclusion reached by every major economist of every major school in the modern history of our discipline, including Fran?ois Quesnay, Adam Smith, David Ricardo, Karl Marx, L?on Walras, and Milton Friedman. This is a conclusion confirmed by every major real-world example of the public capture of economic rent, including by the British Crown in respect of land in Hong Kong, by the Norwegian State in respect of Norway?s oil and gas resources, and by several and various OECD member-country governments in respect of the auctioning of 3G mobile telephone radio spectrum licenses in the early twenty-first century. Today, the Commonwealth Treasury?s February 2023 document (see Item 1 in Table 1.1) provides some new and important evidence to confirm this conclusion in regard to Australia in 2023 ? and none to contradict it. Equity comments: I am well aware that there are often difficult trade-offs to be made between efficiency and equity in regard to the detail of tax policy. Indeed, much of my own professional work is devoted to negotiating precisely such trade-offs in the field of environmental taxation, and especially so in the case of the emerging and developing economies. Nonetheless, in the case of Australia in 2023, I am not in possession of any conclusive evidence to suggest any obvious conflict between efficiency and equity in respect of my selection from the list above, for it is, overwhelmingly, the ?undeserving rich? who enjoy the private appropriation of economic rent. Taxing economic rent is, I submit, efficient and equitable pari passu. In contrast, many apparently equitable proposals, such as increasing taxes and/or reducing tax concessions on high incomes or corporate profits, can generate unintended consequences that damage not only efficiency but also equity.


 

Stefanie Schurer

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Increase resource taxes Equity picks: Wind back superannuation tax concessions Introduce inheritance taxes Increase the corporate tax rate

Efficiency comments: It is impossible to think about this question with only efficiency gains in mind. Any tax change will change the incentives and therefore behaviour. If only efficiency gains are of interest, none of the options above are therefore particularly useful. Efficiency gains can be achieved by taking away administrative overhead of transfer programs (eg conditional cash transfers, auditing of low income tax payers, scrutiny of NDIS applications). For instance, instead of running a large scale unemployment insurance scheme where eligibility needs to be checked and approved by an administrator, a universal basic income could be granted where everyone is eligible. In principle, one could think of it as a replacement of the welfare state. Some have argued that the saved costs could entirely fund such a program and raising more money than its cost. However, if I was forced to choose any option above, I would recommend taxing land, and resources taken from the land. These are immobile capital and transactions, respectively, that cannot easily be moved to another country to avoid the tax. Thus, change in behaviour is the least likely among the options presented above. Equity comments: If equity concerns played a role as well then it would be obvious to introduce taxes and concessions which the wealthy of Australia benefit from most such as non-existence of inheritance taxes, superannuation tax concessions and tax concessions from negatively geared properties (but not the family home!). What is truly missing from the above list is a carbon tax. Climate change costs will be borne by the next generation. A carbon tax could dramatically change incentives of companies and households today, and raise revenue from intergenerationally unfair economic behaviours. I would also take away all subsidies to the fossil fuel industry. Government documents show that in the 2021-22 budget year, measures that wholly, primarily or partly assist the fossil fuel industry cost federal, state and territory governments $11.6 billion. Hence, if $20 billion needed to be raised, over 50% could be raised simply by taking away subsidies to the fossil fuel industry in Australia. See more information here: https://australiainstitute.org.au/wp-content/uploads/2022/03/P1198-Fossil-fuel-subsidies-2022-WEB.pdf


 

Jeffrey Sheen

Efficiency picks: Increase the corporate tax rate Increase resource taxes Tax windfall profits Equity picks: Introduce or increase land taxes (possibly with cut in stamp duty) Increase the corporate tax rate Wind back franking credits


 

Kalvinder Shields

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Tax windfall profits Increase the GST Equity picks: Wind back superannuation tax concessions Introduce inheritance taxes Wind back deductions for negatively geared properties

Efficiency comments: A reduction/elimination of stamp duty would need to be introduced for an efficient broad based land tax. An increase the GST seems a sensible way forward without major inefficiencies. Equity picks: In terms of reducing socioeconomic inequalities, the above seems sensible given that they mostly affect higher income/wealthy individuals/families ? and therefore increasing their tax burden relative to those of lower income/wealth.


 

Susan Thorp

Efficiency picks: Increase resource taxes Equity picks: Introduce inheritance taxes Wind back the capital gains exemptions on the family home

Efficiency comments: Resource extraction is inadequately taxed in Australia and allow rents to accrue mining company owners. Equity comments: Inheritances taxes can reduce the concentration of wealth between generations and slow increases in inequality. Similarly, capital gains tax exemptions on the family home are a source of inter-generational inequity.


 

Julie Toth

Efficiency picks: Wind back superannuation tax concessions Wind back franking credits Increase resource taxes Equity picks: Increase resource taxes Introduce inheritance taxes Wind back franking credits

Efficiency comments: Out of the options provided, these three measures would have the smallest impact on direct incentives for Australians to work or invest in productive activities because they primarily benefit non-working Australians (superannuation concessions and franking credit refunds) or multinational corporations (resource taxes). However, these measures might not raise enough revenue on their own. The tax expenditure statement indicates that many other revenue-raising options are likely to be more efficient in terms of the amount of revenue that could potentially be raised from a single measure (administrative efficiency), but they would probably distort work and investment decisions (allocative efficiency) or have other undesirable effects. Equity comments: Out of the options provided, several measures have strong potential to address wealth inequality between Australian families and individuals without causing undue inefficiencies. Another important aspect of national inequality in Australia is the distribution of income, benefits and costs arising from natural resource exploitation (e.g. mining & water use). Natural resource usage has very unequal impacts on individuals, communities and the environment, current and future. These resource impacts need to be addressed in a more equitable manner.


 

Joaquin Vespignani

Efficiency picks: Wind back deductions for negatively geared properties Introduce or increase land taxes (possibly with cut in stamp duty) Equity picks: Introduce or increase land taxes (possibly with cut in stamp duty) Wind back the capital gains exemptions on the family home

Land taxes and wind-back deductions for the negatively geared property are the most efficient way to collect more taxes without a low impact on economic growth. Both taxes may also help to deal with the looming housing crisis.


 

Beth Webster

Efficiency picks: Introduce or increase land taxes (possibly with cut in stamp duty) Tax windfall profits Equity picks: Wind back superannuation tax concessions Tax windfall profits Introduce or increase land taxes (possibly with cut in stamp duty)

Efficiency comments: Windfall profits, most cleanly measured on mining stocks, do little than reward shareholders ?many of whom are foreign ? for being lucky. There is no evidence that these recent profits have enhanced investment spending. Moving to simplified and consistent (unimproved) land tax would have no effect on investment or production and would be the most efficient tax we could have. Equity comments: Australia has been acclaimed internationally as having a best-practice income retirement approach: entitled public pension; compulsory superannuation and private savings. However, without caps on tax concessions, the scheme loses equity and efficiency points. Allowing concessions to go to extremely wealthy people may undermine public confidence in the system and lead to its un-doing.


 

Danielle Wood

Efficiency picks: Introduce or increase land taxes (possibly with some reduction of stamp duty) Wind back superannuation tax concessions, Increase resource taxes Equity picks: Wind back superannuation tax concessions Introduce or increase land taxes Introduce inheritance taxes

Efficiency comments: Taxes on economic rents are the most efficient taxes so I have included land taxes (assuming this means a broad-based tax on land) and resource taxes (assuming this means a well-designed tax on resource rents). Increasing or broadening the GST would be relatively efficient as would winding back income tax concessions that are not well targeted to a policy purpose (some super tax concessions, CGT on the family home, some workplace deductions, some aspects of negative gearing). GST is unlikely to raise enough after compensating income tax cuts and welfare increases (and much would need to go to the states) and I can't see capital gains tax on the family home being on the table so have gone with super tax concessions as they are also large. Some super tax concessions are justified to compensate people for locking away their money and to create incentives to save more ? but the current tax breaks go much further than needed, particularly for high income earners. The generosity of super tax breaks (that are more generous even than a consumption tax benchmark) distorts the choice of savings vehicles and undermines the tax base. Equity comments: A land tax stamp duty swap would treat homeowners more consistently (currently those that move more frequently pay much more tax than those who stay put - this is both inefficient and inequitable). Inheritance taxes could be designed to only tax large wealth transfers across generations. Given large and growing wealth in the hands of the older generations (see https://grattan.edu.au/report/generation-gap/) inheritances are expected to grow considerably in coming decades (https://www.pc.gov.au/research/completed/wealth-transfers). Grattan work suggests that inheritances are more likely to benefit those who are older and already well-off since (the average age to receive an inheritance is 55-59 and richer parents tend to have richer children). Better targeting super tax concessions would also be an equitable way to raise additional funds ? two-thirds of the value of super tax breaks benefit the top 20% of income earners, who are already saving enough for their retirement and whose savings choices aren?t much affected by tax rates. Better targeting of these tax breaks would be fairer to younger and poorer Australians who are otherwise going to end up paying for the growing cost of these tax breaks through higher income taxes.