Inheritance taxes and negative gearing: how Australia’s top economists would raise $20bn a year

Asked to find an extra $20bn a 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.

Rana Roy, an international consultant, 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.

The former OECD official Adrian Blundell-Wignall said Australia’s natural resources were the birthright of every Australian, and that 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.

Peter Tulip, a Centre for Independent Studies economist, said he would lump income from inheritances in with income from changes in land value. In both cases the income was unexpected, undeserved, 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 the tax expenditures statement at $24.4bn a 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.

James Morley, an economist at the University of Sydney, described getting rid of negative gearing as an “easy win” and said there were better ways to support home building.

The 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 at 10%, it was low by international standards.

‘Unfair’ super concessions and tax-free inheritances

Asked to choose measures on the basis of equity – defined as 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’s 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 $3bn 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 a year, and 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 $100bn 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 a tonne, the revenue would be around $15bn a year from electricity, $18bn from industry, and $9bn 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 $11.6bn.

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

• Peter Martin is the business and economy editor of the Conversation and a visiting fellow at the Crawford School of Public Policy at the Australian National University. This article was originally published in the Conversation.