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Increasing inequality and a growing proportion of renters will put greater pressure on the government to implement wealth taxes in coming years, according to a demographics expert.
Factors such as the major intergenerational wealth transfer, increasing concentration of wealth, and a declining trend in home ownership will likely drive tax reforms around wealth in future years, according to co-founder and director of The Demographics Group, Simon Kuestenmacher.
Ahead of his upcoming presentation at The Tax Summit, Kuestenmacher told Accountants Daily that issues such as growing inequality and the concentration of wealth among the richest are becoming a much greater concern for people aged 35–45.
While people in this age group tend not to be in positions of power just yet, Kuestenmacher said that in 10 years’ time they will be and will likely still hold similar world views.
“They’re very much talking about the injustice of the rich getting richer and of course leftist think tanks such as the Australia Institute are publishing stuff about wealth inequality every day,” he said.
“The further up the food chain you go, the richer people tend to get because it’s relatively easy to retain your wealth, whereas accumulating it is more of a challenge, especially when basics like housing are so expensive.”
Kuestenmacher said that wealth taxes are ultimately aimed at countering wealth concentration and taking a more egalitarian approach towards the distribution of wealth.
“At the same time income tax would be loosened and of course these wealth taxes would be progressive so that the poorer and middle class people keep all their income but as as you go up, wealth gradually gets taxed,” he said.
Kuestenmacher acknowledged that the introduction of any new taxation on wealth would bring challenges both from a political perspective and in terms of determining how to measure wealth and tax it.
One of the easiest forms of wealth tax to implement would be to kill off stamp duty and replace it with land tax, he said.
The Victorian government has already started moving towards this model in relation to commercial and industrial properties with the introduction of the commercial and industry property tax on 1 July 2024.
“Removing stamp duty and replacing it with land tax is still, politically, a nonsensical proposition at the moment because you have an environment where two-thirds of voters own their own home. Those voters don’t want to see their biggest asset taxed and simply vote for the other party,” said Kuestenmacher.
“[However], looking at the demographic forecasts, essentially there are more people dying that are home owners than we have people in their mid-20s becoming home owners.
“As that rental base increases, the number of people that would vote in favour of taxing wealth in the form of housing also increases.”
Kuestenmacher said even if renters don’t make up the majority of voters, the increase in this voter base could still see a significant shift in support for measures such as wealth taxes.
He said that the Greens have already positioned themselves as the renters’ party and are increasingly growing their balance of power in government.
“They could use [policies] such as wealth taxes as a bargaining chip before the point in time where the demographic reality is that there are more renters than home owners and a tax like this will be introduced automatically,” he said.
“It’s just a matter of time of when this will occur because the trends point this way.”
Kuestenmacher said as the intergenerational wealth transfer accelerates, the introduction of death or inheritance taxes could also be more likely.
While the intergenerational wealth transfer won’t reach its peak till the early 2040s and will remain elevated through that decade, a government looking to get the most benefit out of this significant wealth transfer may look to put in place new tax policies well before this, he said.
“If I’m the state, I’d want to have my fingers in the pie when this transfer occurs and I’d want to implement the death or inheritance tax sooner rather than later because there’s so much coming my way. At the very least, I’d want to have it set by the 2030s,” Kuestenmacher said.
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