May 2013

The Nation Reviewed

It’s only super till you die

By Judith Brett

Australia once had death taxes, as they are generally called by their opponents; supporters call them inheritance, estate or bequest taxes © Simon Schluter / Fairfax Syndication

Taxes, death and superannuation

Taxing has never been easy. It has, however, become harder in Western countries. The “victory” of neo-liberalism, as declared by Rupert Murdoch in his speech to the Institute of Public Affairs last month, has left us with the expectation, if not the reality, of smaller government. Although many of us still share the view of Oliver Wendell Holmes, Jnr that taxation is the price we pay for living in a civilised community, taxes are regularly represented as money taken from us by the government. The latter view stresses what we lose – money; the former what we gain – the services only government can provide.

So governments introducing new taxes, or even fiddling with old ones, have to proceed with care. This the Labor government has conspicuously failed to do, with the mining tax and more recently with the changes to the tax treatment of superannuation. Whether this failure arises from arrogance, incompetence, naivety or all three, botched attempts to raise new taxes or realign the tax base have consequences in making it that much harder for future governments to try again. By handing two wins to the anti-tax brigade, Labor has contributed to the normalisation of anti-tax “common sense” and shown that if enough of a fuss is made, governments may well back off. In retrospect, John Howard’s implementation of the GST looks increasingly impressive.

The mining tax should have been the easier of the two for the government. It was a tax on production, and the arguments for it were largely economic and financial. A savvy government would have anticipated a powerful backlash from the industry (after all, it had derailed the Labor government’s native title legislation in the 1980s), but proper consultation and careful modelling should have delivered an acceptable compromise.

Fiddling with superannuation taxes was always going to be another matter. Superannuation is money saved for old age, nowadays called retirement: the period that once ended requires no more money. Taxing superannuation stirs up two powerful emotional clusters – around the fear of death and the virtues of saving.

Australia once had death taxes, as they are generally called by their opponents; supporters call them inheritance, estate or bequest taxes. Names matter here. “Death tax” focuses on the person who accumulated the wealth and suggests that they have been taxed for dying; “inheritance”, “estate” or “bequest” tax shifts attention to the beneficiary of the windfall, which is where the future economic impact lies. Estate taxes were, in fact, the Australian colonies’ first significant direct taxes and all colonies had them in place by the end of the 19th century. The federal government introduced an estate duty during World War One, largely because it needed a quick way to increase revenue to fight the war. Despite some harrumphing, federal estate taxes enjoyed bipartisan support during the middle decades of the 20th century. They were increased again by Robert Menzies’ government in 1940, and extended to gifts by John Curtin’s Labor government to frustrate tax evasion. Again, the context was funding a war.

By the late 1960s the tax was widely seen as inefficient and unfair, particularly by farmers who wanted to pass their family farms on to their sons. There was pressure for reform and a federal government enquiry took place in the early 1970s. Instead of reform, inheritance taxes were abolished, first by Bjelke-Petersen in 1977, with the other states following as old people flocked to Queensland. In the first substantial debate on estate duties since World War One, the shift away from the mildly social democratic postwar consensus was already apparent. Now familiar neo-liberal arguments about the need to encourage and reward the entrepreneurial wealth-creators were heard from supporters of abolition, and Labor opponents were accused of class envy. In 1978, with John Howard as his new treasurer, Malcolm Fraser abolished federal estate duties.

Inheritance taxes have a lot going for them, and most major Western economies have some form of them in place. Those who accumulated the money no longer need it, and those who inherit it have neither earnt nor saved it. For them it is a windfall. It thus has no adverse impact on economic activity, and would be redistributive in a country like Australia where wealth is much more unevenly distributed than income. There are of course problems of implementation as people try to evade it, but this is true of all taxes. The Henry Tax Review of 2010 suggested that a modest bequest tax be considered, adding the demographic argument that the baby boomers who have benefited from massive asset inflation in their lifetimes are soon to pass it on. Aware of its emotional baggage, the review stopped short of actually recommending it, and the government immediately ruled it out as critics started to stir up a death tax scare campaign.

Taxing super is not quite the same as taxing an inheritance, but it is in the same end-of-life territory, and so arouses similar fears of the approaching end. It also arouses the second of the powerful emotional clusters mentioned above: the virtues of saved money. Neo-liberalism generally reveres saved money, giving generous treatment to capital gains, but reverence for saved money is not new. It is one of the pillars on which the moral middle class built their claims to political virtue, their savings evidence of their character and moral rectitude twice over – once in the effort expended to earn the money, and a second time in the self-control exercised by not spending it. During the Depression of the 1930s, before John Maynard Keynes had made the expansion of credit respectable, the virtues of saving competed for political sympathy with the claims of the unemployed and destitute. Proponents of “honest finance” concluded that the value of saved money should not be put at risk of inflation to finance current need, the financial difficulties of savers carrying for them greater moral weight than the plight of the unemployed. Just as Tony Abbott recently decried Labor’s “raid on retirement savings”, government was accused of being a “savings snatcher”. Senator George Pearce, once a Labor man, praised “the deserving sections of the community who through long years have been saving so that they would not have to ask for an old age pension in their declining years”. Now that Keynesianism has been all but eclipsed by neo-liberalism, and deficit budgeting has lost its shine, the same arguments are resurfacing.

Under the heading “Question for Wayne Swan: Exactly what have you got against us?”, the Australian quoted Sydney financial planner Robert Craven as saying, “What the whole brouhaha is causing is a widespread concern among potential and current retirees that they’re about to be disadvantaged despite having done their very best to avoid being a burden on the public purse in their old age.” Come on, Robert, do you really expect anyone to believe that it is altruistic concern for the public purse and not self-interest that motivates your or anyone else’s saving for retirement? Isn’t it really the desire to have a comfortable retirement, with enough money for ample recreational expenditure? A couple on the pension would receive around $30,000 per annum, well short of the $50,000 they might need for modest comfort and the occasional overseas holiday.

Questions of motivation for saving aside, to regard accumulated wealth solely as the product of past labour combined with the propensity to save is self-servingly disingenuous. Sources of wealth are more varied than this. There is inheritance, illegality and luck, including the generational luck of the baby boomers in benefiting from massive increases in house prices. But, as death approaches, the impulse to view savings as the result of effort and good sense seems to strengthen. All that past time now condensed into a figure on a balance sheet can seem like a tangible answer to the question, “What was it all about?”

Judith Brett

Judith Brett is an emeritus professor of politics at La Trobe University. Her latest book is From Secret Ballot to Democracy Sausage: How Australia Got Compulsory Voting.

Cover: May 2013

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