tag:theconversation.com,2011:/africa/topics/inheritance-tax-13275/articlesInheritance tax – The Conversation2024-03-04T17:08:06Ztag:theconversation.com,2011:article/2242942024-03-04T17:08:06Z2024-03-04T17:08:06ZBudget 2024: what to expect from Jeremy Hunt’s pre-election tax giveaway<p>UK chancellor Jeremy Hunt’s last budget before the general election will be highly political. His aim on March 6 will be to convince voters that the Conservatives are a tax-cutting party. Standing in his way is a <a href="https://www.cnbc.com/2024/02/15/uk-economy-slipped-into-technical-recession-at-the-end-of-2023.html">weak economy</a> and <a href="https://www.bloomberg.com/news/articles/2023-12-21/uk-budget-deficit-jumps-27-in-first-eight-months-of-fiscal-year?leadSource=uverify%20wall">unwieldy budget deficit</a>, which keeps adding to the high levels of government debt. </p>
<p>So can he afford tax cuts – and could they change the outcome of the election?</p>
<p>Hunt would like to extend the tax cuts for individuals and businesses that he began in the <a href="https://theconversation.com/autumn-statement-as-it-happened-218211">November autumn statement</a>, cutting employees’ National Insurance (NI) taxes from 12p to 10p in the pound and giving businesses a potential £10 billion in tax relief for investment spending. </p>
<p>But since then, the UK economy has gone into recession and the long-term national finances have worsened. Estimates by the government’s Office for Budget Responsibility (OBR) will <a href="https://www.bloomberg.com/news/articles/2024-02-22/hunt-given-good-news-on-uk-budget-forecasts-by-fiscal-watchdog">likely show</a> that Hunt only has “headroom” for around £13 billion in tax cuts. This is around half the amount that the OBR’s <a href="https://obr.uk/efo/economic-and-fiscal-outlook-november-2023/">November 2023 forecast</a> predicted would be available (and the pot is even less when you take into account the need to keep some in reserve for emergencies).</p>
<h2>The main options</h2>
<p>Some people want Hunt to <a href="https://www.telegraph.co.uk/money/tax/inheritance/reform-pledge-total-abolition-inheritance-tax/">abolish inheritance tax</a> or <a href="https://www.telegraph.co.uk/politics/2024/03/03/liz-truss-tells-jeremy-hunt-scrap-stamp-duty-legatum-budget/">remove stamp duty</a> on the sale of property. More likely, he’ll take the view that the most politically beneficial tax cuts will be the ones which reach the largest number individuals. </p>
<p>Only 27,000 people in the UK <a href="https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary">pay inheritance tax</a>, while <a href="https://www.gov.uk/government/statistics/income-tax-liabilities-statistics-tax-year-2020-to-2021-to-tax-year-2023-to-2024/bulletin-commentary">20 million</a> pay NI and nearly 32 million pay income tax. </p>
<p>In November, Hunt argued that cutting NI was preferable to cutting income tax as it helped to boost employment at less cost to the government. Cutting income tax, however, could have higher political profile, and is the stated long-term goal of the prime minister, Rishi Sunak. </p>
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<a href="https://images.theconversation.com/files/579572/original/file-20240304-18-uazta3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Workman by some scaffolding" src="https://images.theconversation.com/files/579572/original/file-20240304-18-uazta3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/579572/original/file-20240304-18-uazta3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579572/original/file-20240304-18-uazta3.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579572/original/file-20240304-18-uazta3.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579572/original/file-20240304-18-uazta3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579572/original/file-20240304-18-uazta3.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579572/original/file-20240304-18-uazta3.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Fiscal drag is quietly squeezing millions of workers.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/man-in-yellow-jacket-and-black-pants-walking-on-sidewalk-during-daytime-6pwdyrBO5qw">Krzysztof Hepner/Unsplash</a></span>
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<p>It could also help to <a href="https://www.thetimes.co.uk/article/jeremy-hunt-tax-cuts-uk-thresholds-spring-budget-7d5xdsbph">quell the clamour</a> to reverse the freeze on income-tax thresholds that began in 2021. The government has already raised <a href="https://researchbriefings.files.parliament.uk/documents/CBP-9687/CBP-9687.pdf">more than £16 billion</a> from this “fiscal drag”, which is projected to <a href="https://www.thisismoney.co.uk/money/article-12781839/Tax-burden-highest-Second-World-War-44-billion-stealth-tax.html">add about £44 billion</a> a year to the public coffers by 2028. </p>
<p>But with <a href="https://obr.uk/docs/dlm_uploads/E03004355_November-Economic-and-Fiscal-Outlook_Web-Accessible.pdf">public debt</a> close to 100% of GDP and the <a href="https://www.bloomberg.com/news/articles/2023-12-21/uk-budget-deficit-jumps-27-in-first-eight-months-of-fiscal-year?leadSource=uverify%20wall">government struggling</a> to reduce its budget deficit (the difference between income and outgoings), this “stealth tax” is likely to continue. Even cutting 1p from income tax <a href="https://www.gov.uk/government/statistics/direct-effects-of-illustrative-tax-changes/direct-effects-of-illustrative-tax-changes-bulletin-january-2023">would cost</a> £7 billion, while an NI cut would cost £5 billion, so either would use up most of the available headroom.</p>
<h2>Paying for tax cuts – and laying traps for Labour?</h2>
<p>To finance bigger tax cuts, the chancellor may announce other ways of raising revenues or cutting spending. He could increase taxes that target only a small proportion of individuals, such as on vapes and tobacco. This would be in line with the government’s aim to stop smoking, and could <a href="https://www.thetimes.co.uk/article/what-will-a-vaping-tax-in-budget-mean-for-the-tobacco-industry-j57vxdwd6#:%7E:text=The%20vaping%20levy%20expected%20to%20be%20announced%20by%20Hunt%20on,15%20similar%20schemes%20across%20Europe.">raise around £500 million</a>. </p>
<p>There is <a href="https://www.theguardian.com/politics/2024/feb/28/hunt-considers-poaching-labours-plan-to-scrap-non-domiciled-tax-rules">also speculation</a> that he might tax “non-doms”, despite ruling it out in the past. Targeting these individuals living in the UK who claim tax exemption from their foreign income could raise <a href="https://www.lse.ac.uk/News/Latest-news-from-LSE/2022/i-September-22/Abolishing-the-non-dom-regime-would-raise-more-than-3.2-billion-each-year-finds-new-report">up to £3.2 billion</a>. It would mean stealing a Labour policy, but giving the money away as tax cuts would also undermine the opposition’s plans to spend the proceeds on improving education and the NHS. </p>
<p>In the same vein, Hunt is <a href="https://www.bloomberg.com/news/articles/2024-02-29/jeremy-hunt-may-extend-uk-windfall-tax-on-oil-gas-at-budget">reportedly considering</a> using Labour’s plan to extend the windfall tax on oil and gas companies beyond 2028. Since <a href="https://www.mirror.co.uk/news/politics/labours-rachel-reeves-vows-not-31815588">Labour has pledged</a> not to raise income taxes or NI, these taxes are crucial to their plans to fund improvements in public services. </p>
<p>As for Hunt cutting future spending, the scope is limited but not insignificant. Spending is already set to increase by just 1% per year to 2028-29, which probably entails cuts once you factor in inflation. Yet lowering that to 0.75% per year is likely to save another <a href="https://news.sky.com/story/chancellor-jeremy-hunt-considering-further-public-spending-cut-to-boost-tax-giveaway-in-budget-13086803">£5 billion to £6 billion</a>.</p>
<p>Labour may struggle to accept such a plan. The 1% target has <a href="https://www.theguardian.com/politics/2024/jan/23/head-of-obr-says-lack-of-budget-details-led-to-work-of-fiction-forecasts-last-year">already been compared</a> to “a work of fiction” by Richard Hughes, head of the OBR. He argues that after years of austerity, the government has given no indication of what it could cut without putting vital services at risk, or how it would pay for ambitious plans to <a href="https://educationhub.blog.gov.uk/2024/01/02/how-to-apply-for-30-hours-free-childcare-and-find-out-if-youre-eligible/">expand free childcare</a> and <a href="https://www.theguardian.com/society/2023/aug/30/one-in-11-workers-england-could-nhs-staff-by-2036-37-study">increase the NHS workforce</a>.</p>
<p>Nonetheless, many experts are questioning the logic of the existing spending restrictions. The former chief economist of the Bank of England, <a href="https://www.bbc.co.uk/news/uk-politics-68461581">Andy Haldane</a>, claims the rules are “stunting” economic growth and constraining the chancellor. But the chancellor thinks any changes <a href="https://www.bbc.co.uk/news/uk-politics-6846158">might worry financial markets</a>, similar to what happened to Liz Truss in 2022. </p>
<p>And others believe that the government’s fiscal rules, the most important of which is to have debt falling as a share of GDP in five years time, are not a useful guide to policy. The <a href="https://ifs.org.uk/articles/gaming-fiscal-rules-no-way-make-budget-policy">Institute for Fiscal Studies</a> thinks they are so loose as to allow the government to “game the system”. Changing these wouldn’t be impossible: there have been <a href="https://www.instituteforgovernment.org.uk/explainer/fiscal-rules-history#:%7E:text=The%20first%20fiscal%20rules%20in,set%20the%20UK%20has%20had.">22 changes since</a> they were first introduced in 1997. However, <a href="https://www.ft.com/content/ad0b201d-c761-42ba-be75-a66a8d6fed82">Labour has pledged</a> to introduce similar rules and spending restrictions if it comes into power. </p>
<h2>Will it help win the election?</h2>
<p>It is far from clear that tax cuts are what the electorate wants, even among Conservatives. Recent polling suggests the NHS, the economy and the cost-of-living are <a href="https://www.ipsos.com/en-uk/uk-opinion-polls">much higher priorities</a>.</p>
<p>Polls going back years also suggest <a href="https://fairnessfoundation.sharepoint.com/Documents/Forms/AllItems.aspx?id=%2FDocuments%2FFF%2FResearch%2FCurrent%2FOpportunity%2FTax%2FSummaries%2FMinority%20Sport%2Epdf&parent=%2FDocuments%2FFF%2FResearch%2FCurrent%2FOpportunity%2FTax%2FSummaries&p=true&ga=1">a shift</a> towards greater concern about the effect of tax cuts on public services. Only 16% of Britons now want them cut, if it means cutting public services, rising to only 17% among Conservative voters. Meanwhile, 31% want <em>increased</em> taxes to improve public services while 33% want taxes and spending to stay the same.</p>
<p>However, another poll asking what should be the government’s <a href="https://savanta.com/knowledge-centre/published-polls/pre-budget-snap-poll-savanta-29-february-2024/">priority in the budget</a> found that 54% backed lowering taxes for people, while only 35% favoured increasing spending on public services.</p>
<p>At any rate, the budget will be an opportunity to judge the public mood and see whether either party can convince the public it can tackle the cost-of-living crisis while improving public services. In particular, all eyes will be on Hunt to see if he can do anything to turn around the <a href="https://www.bbc.co.uk/news/uk-politics-68079726">government’s moribund polling</a>.</p><img src="https://counter.theconversation.com/content/224294/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steve Schifferes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Can the chancellor move the dial on the Tories’ grim polling?Steve Schifferes, Honorary Research Fellow, City Political Economy Research Centre, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2207502024-01-16T17:48:06Z2024-01-16T17:48:06ZWhy inheritance tax should be reformed<figure><img src="https://images.theconversation.com/files/568903/original/file-20240111-17-t7s1d9.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7360%2C4912&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/senior-indianasian-couple-accounting-doing-home-1346799704">StockImageFactory.com/Shutterstock</a></span></figcaption></figure><p>Around 50 Conservative MPs called for <a href="https://www.telegraph.co.uk/money/tax/inheritance/pressure-rishi-sunak-commit-scrapping-inheritance-tax">inheritance tax to be abolished</a> after the Telegraph <a href="https://www.telegraph.co.uk/politics/2023/07/30/tens-of-thousands-more-families-to-pay-inheritance-tax/">launched a campaign</a> urging the government to scrap the tax in summer 2023. The move has since been discussed as a potential <a href="https://www.morningstar.co.uk/uk/news/AN_1704620581660729600/uk-pm-sunak-hints-tax-cuts-to-be-paid-for-by-decisions-on-welfare.aspx">“pre-election giveaway”</a> in the government’s upcoming spring budget. </p>
<p>Beyond the coming election, another longer term reason for recent discussion of this tax is the <a href="https://ifs.org.uk/publications/inheritances-and-inequality-within-generations">increase in the size of inheritances</a> in recent decades. Inheritances are growing in absolute terms as the amount of wealth held by older people increases over time. Inheritances are also <a href="https://ifs.org.uk/articles/inherited-wealth-course-be-much-more-important-determinant-lifetime-resources-todays-young">growing relative to lifetime employment income</a>, so they are set to be increasingly important determinants of people’s overall economic outcomes. </p>
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Read more:
<a href="https://theconversation.com/why-youre-less-likely-to-get-rich-these-days-if-your-parents-arent-already-wealthy-194321">Why you're less likely to get rich these days if your parents aren't already wealthy</a>
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<p>This means how we choose to tax inheritances is becoming increasingly consequential.</p>
<p>Inheritance tax is applied at 40% to transfers of wealth on or close to death, above a minimum threshold – currently £325,000. Most people don’t pay it: <a href="https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary">less than 4% of deaths</a> resulted in inheritance tax in 2020–21. While this figure is set to rise over time – around 5% of deaths are <a href="https://obr.uk/efo/economic-and-fiscal-outlook-november-2023/">forecast</a> to result in inheritance tax this year, rising to <a href="https://ifs.org.uk/publications/reforming-inheritance-tax">7% by 2032-33</a> – it’s still expected to remain low. </p>
<p>One factor holding this number down is that there is no inheritance tax payable on wealth left to a spouse or civil partner. But even if we count someone as an inheritance taxpayer if either they or their spouse or civil partner pay the tax at their death, the total number of taxpayers would still be <a href="https://ifs.org.uk/publications/reforming-inheritance-tax">fewer than one in 10 </a>.</p>
<p>The main reason why few people pay inheritance tax is that the effective threshold at which they (or their spouse or civil partner) would begin paying the tax is typically much higher than £325,000. In addition to the £325,000 that can be given tax-free, there is a £175,000 allowance for residential property transferred to direct descendants. </p>
<p>For most people, this means the threshold rises to £500,000. Unused portions of tax-free thresholds can also be passed to a surviving spouse or civil partner, resulting in an effective threshold of £1 million before inheritance tax is payable for most married couples.</p>
<p>Since so few people actually pay inheritance tax, it brings in a relatively small amount in government revenues – around £7 billion in 2022–23, or 0.3% of GDP and less than 1% of government revenues. That said, the growing levels of wealth held by older generations mean that revenues are <a href="https://ifs.org.uk/publications/reforming-inheritance-tax">forecast</a> to reach £15 billion or 0.5% of GDP by 2032–33.</p>
<h2>Potential effects</h2>
<p>Abolishing inheritance tax would currently cost the government £7 billion per year. As discussed, this figure is expected to grow over time. Abolition would mean that the government would have to either raise other taxes, cut spending elsewhere, or increase borrowing.</p>
<p>Around half of the gains from abolishing inheritance tax <a href="https://ifs.org.uk/publications/reforming-inheritance-tax">would go to the wealthiest 1% at death</a>, whose estates would see an average tax cut of £1 million. Around half would also go to estates in London and the South East, where the wealthiest individuals are concentrated. More than 90% of people don’t have inheritance tax paid on their or their partner’s death and so wouldn’t benefit from abolition.</p>
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<img alt="Cup of coffee, glasses, pen and paper that says Last will and testament of." src="https://images.theconversation.com/files/568907/original/file-20240111-28-agd8cf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/568907/original/file-20240111-28-agd8cf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/568907/original/file-20240111-28-agd8cf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/568907/original/file-20240111-28-agd8cf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/568907/original/file-20240111-28-agd8cf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/568907/original/file-20240111-28-agd8cf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/568907/original/file-20240111-28-agd8cf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Writing a will.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/last-will-testament-510895957">Fabio Balbi/Shutterstock</a></span>
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<p>There are some reasons to think that cutting inheritance tax might be popular. Only around 20% of people <a href="https://benansell.substack.com/p/a-puzzling-inheritance">called inheritance tax “fair”</a> in a 2023 YouGov poll, compared to around 60% for National Insurance contributions. However, <a href="https://ifs.org.uk/sites/default/files/2023-12/Slides-from-Dan-Goss_0.pdf">research from Demos</a> shows most people wouldn’t prioritise inheritance tax for cuts, but would prefer to spend the money that abolishing inheritance tax would cost in other ways. Of course, interpreting public opinion is not straightforward.</p>
<h2>Reforming inheritance tax</h2>
<p>Inheritance tax in its current form involves various reliefs and exemptions. These are unfair, distort people’s choices about how to hold their wealth and reduce government revenues. Abolishing or curtailing these reliefs would improve the tax system.</p>
<p>Pension pots are totally exempt from inheritance tax, as they are not counted as part of a deceased person’s estate. This means people are <a href="https://ifs.org.uk/publications/death-and-taxes-and-pensions">incentivised to fund retirement through non-pension assets</a> such as ISAs or savings accounts, while using pension pots for bequests. This avenue of tax avoidance will become open to more people over time, as these pots become an <a href="https://ifs.org.uk/publications/how-important-are-defined-contribution-pensions-financing-retirement">increasingly important</a> part of households’ overall wealth.</p>
<p>Agricultural and business reliefs mean that interests in farms and businesses can be passed on untaxed, encouraging people to hold wealth in those forms too. It’s <a href="https://ifs.org.uk/publications/reforming-inheritance-tax">hard to justify</a> this on economic grounds. A cap on such reliefs could allow those passing on small farms or businesses to be taken out of inheritance tax, if desired, while preventing agricultural and business investments from being used simply to avoid inheritance tax.</p>
<p>A reform capping business reliefs, including the value of pension pots in people’s estates, and treating residential property identically to other assets could raise up to £4.5 billion in tax revenues. This could fund a cut in the rate of inheritance tax <a href="https://ifs.org.uk/publications/reforming-inheritance-tax">from 40% to 25%</a> or an increase in the threshold after which inheritance tax is charged to £525,000. Alternatively, it could be used fund public spending or tax cuts in other areas.</p>
<p>There are arguments for and against abolishing inheritance tax, but addressing problems in the current system is increasingly important and would raise revenues. Beyond the implications for the government’s finances, such a reform would make the UK tax system fairer and reduce some of its perverse effects on people’s economic choices.</p><img src="https://counter.theconversation.com/content/220750/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Sturrock receives funding from the Economic and Social Research Council and the abrdn Financial Fairness Trust.</span></em></p><p class="fine-print"><em><span>Bee Boileau receives funding from the Economic and Social Research Council and the abrdn Financial Fairness Trust.</span></em></p>Removing certain reliefs would raise revenues that could be used to fund a cut in the headline rate or increased public spending.David Sturrock, Senior Research Economist, Institute for Fiscal StudiesBee Boileau, Research Economist, Institute for Fiscal StudiesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2178542023-11-16T14:27:54Z2023-11-16T14:27:54ZSix ways the upcoming autumn statement could affect your personal finances<p>The UK chancellor Jeremy Hunt will have limited room for manoeuvre when he makes his <a href="https://commonslibrary.parliament.uk/what-is-the-autumn-statement/">autumn statement</a> about the government’s financial plans on November 22. The government is committed to supporting the Bank of England’s current strategy for reducing inflation, which involves using rate hikes to slow down economic activity. </p>
<p>This means Hunt can’t take any steps that would immediately boost spending by people, businesses or the government, such as across-the-board income tax cuts. But he is likely to focus on extending tax breaks for business investment aimed at stimulating economic growth over time. </p>
<p>And while the government often saves grand financial plans for its annual budget announcement (<a href="https://commonslibrary.parliament.uk/what-is-the-budget/#:%7E:text=The%20Budget%20is%20a%20statement,same%20day%20as%20the%20Budget.">usually made in March</a>) , some smaller measures have been trailed in recent weeks that could feature in the autumn statement and that would have an impact on your money.</p>
<h2>1) ISA overhaul</h2>
<p>Part of the support for business theme could actually involve an overhaul of individual savings accounts (ISAs). These tax-sheltered savings schemes were introduced in 1999 and allow you to opt for the security of cash savings or putting your money riskier investments such as stocks and shares.</p>
<p><a href="https://www.gov.uk/government/statistics/annual-savings-statistics-2023">Six out of ten ISA accounts</a> are currently in cash, but <a href="https://www.reuters.com/world/uk/uks-jeremy-hunt-plans-isa-overhaul-boost-share-ownership-ft-2023-09-22/">it’s rumoured</a> the chancellor wants to shift ISAs towards being a source of finance for British industry. This could involve raising the annual ISA limit (currently £20,000) for accounts investing in UK companies to encourage more share ownership.</p>
<h2>2) More mortgage support</h2>
<p>According to mortgage lender Halifax, the <a href="https://www.lloydsbankinggroup.com/assets/pdfs/media/press-releases/2023-press-releases/halifax/2023.09.27-halifax-number-of-first-time-buyers-falls.pdf">price of an average first home</a> fell slightly over the 12 months to August 2023, but can still be as much as ten times average earnings in some areas.</p>
<p>Against this backdrop, the government may extend its mortgage guarantee scheme <a href="https://www.gov.uk/government/news/government-extends-mortgage-guarantee-scheme">for another year</a> beyond the end of December 2023, at least for first-time buyers. Under the scheme, the government backs lenders who offer 95% mortgages, which enable homebuyers to put down a deposit of just 5% of the home’s value.</p>
<p>The scheme has <a href="https://uk.finance.yahoo.com/news/uk-house-prices-mortgage-deposit-scheme-stamp-duty-cuts-property-london-113118022.html">attracted criticism</a> though. While these kinds of initiatives can make home ownership more affordable for some, they also increase demand. Without an accompanying move to stimulate extra housing supply, this can keep house prices high.</p>
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<img alt="" src="https://images.theconversation.com/files/559894/original/file-20231116-27-9zxym2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/559894/original/file-20231116-27-9zxym2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/559894/original/file-20231116-27-9zxym2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/559894/original/file-20231116-27-9zxym2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/559894/original/file-20231116-27-9zxym2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/559894/original/file-20231116-27-9zxym2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/559894/original/file-20231116-27-9zxym2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Current and hopeful homeowners will be looking out for more support from the chancellor in his autumn statement.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-england-uk-july-19-2013-595875326">Alex Segre/Shutterstock</a></span>
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</figure>
<h2>3) Stamp duty rebate</h2>
<p>Stamp duty land tax is paid by buyers of homes in England and Northern Ireland that cost more than £250,000 (£425,000 for first-time buyers). There are equivalent taxes in Wales and Scotland.</p>
<p>A cut in stamp duty land tax rates seems unlikely and the current threshold has already been increased <a href="https://www.gov.uk/government/publications/stamp-duty-land-tax-temporary-reductions-for-residential-properties/stamp-duty-land-tax-temporary-increase-to-thresholds">until March 2025</a> anyway. However, the government is <a href="https://www.telegraph.co.uk/news/2023/10/27/homeowners-who-upgrade-energy-efficiency-stampy-duty-rebate/">rumoured</a> to be considering a partial stamp duty rebate for buyers who improve the energy efficiency of their home within two years of purchase.</p>
<p>This seems like a drop in the ocean against the need for wholesale greening of the UK housing stock. which accounts for around <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1147372/2022_Provisional_emissions_statistics_report.pdf">a sixth of the UK’s carbon dioxide emissions</a>. But it could be a relatively inexpensive concession to please homebuyers. </p>
<h2>4) Inheritance tax cut</h2>
<p>Another <a href="https://www.theguardian.com/money/2023/sep/24/sunak-considering-inheritance-tax-cut">persistent rumour</a> is that inheritance tax – which is applied to money and assets you give away – could be cut or even abolished by the current government.</p>
<p>Most lifetime gifts escape the tax, so it is mainly a tax on your estate when you die. However, up to £500,000 of what you leave (up to £1 million for couples who are married or in a civil partnership) can be passed on tax-free. Above that, the tax rate is usually a substantial 40%.</p>
<p>The exemptions mean <a href="https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary">less than 4% of deaths</a> result in a charge, but inheritance tax is still <a href="https://oro.open.ac.uk/42441/">deeply unpopular</a>. So, cutting or abolishing it could be a vote winner even though most people don’t pay it.</p>
<h2>5) State pension changes</h2>
<p>The government is currently committed to honouring the “triple lock”, in other words increasing state pensions in April each year by the greater of <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/september2023">price inflation</a> (based on the previous September’s figures), <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/september2023">earnings inflation</a> (over the quarter to the previous July) or 2.5%.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/how-to-fix-the-pensions-triple-lock-but-still-protect-pensioners-from-high-inflation-186611">How to fix the pensions triple lock but still protect pensioners from high inflation</a>
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<p>Since the relevant data has already been published, we already know that under the triple lock the state pension is due to rise in line with average earnings (including bonuses) in April 2024 – an 8.5% increase.</p>
<p>However, legislation does not specify the measure of average earnings that the government must use. This creates wiggle room and <a href="https://www.moneysavingexpert.com/news/2023/10/state-pension-benefits-inflation-/">there has been speculation</a> that state pensions may be increased based on the rise in regular earnings excluding bonuses (7.8%) rather than in line with total pay.</p>
<p>Using the lower figure would save the government <a href="https://commonslibrary.parliament.uk/the-triple-lock-how-will-state-pensions-be-uprated-in-future/">around £900 million</a>. And if you’re getting the full new state pension, you’d see your pension rise to £219.75 a week instead of £221.20 under the higher figure.</p>
<h2>6) Benefits freeze</h2>
<p>In stark contrast to state pensions, the government might freeze benefit payments for working-age people. Ministers are <a href="https://www.bbc.co.uk/news/uk-67385385">rumoured to be considering</a> cuts that would slice billions off the UK’s welfare budget. This could be seen as a callous move since 3.8 million people in the UK are already financially destitute, <a href="https://www.jrf.org.uk/report/destitution-uk-2023">according to think-tank Joseph Rowntree Foundation</a>, despite nearly three-quarters of them being in receipt of state benefits.</p>
<p>Of course, the official details of the statement will remain under wraps until the chancellor makes his speech in parliament. While there has been plenty of speculation in recent months and weeks, you’ll have to wait until then to get a definitive picture of how your finances will be affected.</p><img src="https://counter.theconversation.com/content/217854/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonquil Lowe does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>ISAs, benefits and mortgage support are all rumoured to be mentioned in chancellor Jeremy Hunt’s next autumn statement.Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2026302023-03-28T23:13:31Z2023-03-28T23:13:31ZInheritance taxes, resource taxes and an attack on negative gearing: how top economists would raise $20 billion per year<figure><img src="https://images.theconversation.com/files/517641/original/file-20230327-485-73myrj.png?ixlib=rb-1.1.0&rect=143%2C395%2C3808%2C1814&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>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.</p>
<p>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 <a href="https://theconversation.com/tax-breaks-cost-a-reported-250-billion-but-handle-these-new-figures-with-care-200819">Tax Expenditures and Insights Statement</a>) and reply as if political constraints were not a problem.</p>
<p>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 <a href="https://www.oecd.org/">OECD</a> officials, and a former member of the Reserve Bank board.</p>
<p>Asked to choose tax measures on the basis of <a href="https://www.investopedia.com/terms/e/economic_efficiency.asp">efficiency</a> – 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.</p>
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<p>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.</p>
<p>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.</p>
<p>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. </p>
<p>Blundell-Wignall said politicians should ignore the usual hysteria that arose whenever the idea was discussed.</p>
<p>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.</p>
<h2>Negative gearing an ‘easy win’</h2>
<p>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 <a href="https://treasury.gov.au/publication/p2023-370286">$24.4 billion per year</a>.</p>
<p>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.</p>
<p>University of Sydney economist James Morley described getting rid of negative gearing as an “easy win”. There were better ways to support home building.</p>
<p>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.</p>
<p>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.</p>
<h2>‘Unfair’ super concessions and tax-free inheritances</h2>
<p>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.</p>
<p>None would broaden the GST on equity grounds, and only 3.4% would increase its rate on equity grounds.</p>
<hr>
<p><iframe id="YyqZV" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/YyqZV/8/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>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. </p>
<p>Wood said the government should go further than the measures taken against super accounts worth more than $3 million announced in February. </p>
<p>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. </p>
<h2>Missing fixes: Stage 3 and a carbon tax</h2>
<p>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 “<a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stage 3</a>” tax cuts for high earners, due to take effect in 2024.</p>
<p>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. </p>
<p>Three panellists, Frank Jotzo, Michael Keating and Stefanie Schurer, said they would have selected “carbon pricing to raise revenue” had it been an option.</p>
<p>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.</p>
<p>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. </p>
<p>If the government needed $20 billion per year, it could raise around half from fossil fuel subsidies alone.</p>
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<p><em>Individual responses:</em></p>
<p><iframe id="tc-infographic-837" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/837/666bcce5490fc595c156ba66209b76e67a0aebc3/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-can-australia-pay-368-billion-for-new-submarines-some-of-the-money-will-be-created-from-thin-air-202150">How can Australia pay $368 billion for new submarines? Some of the money will be created from thin air</a>
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<img src="https://counter.theconversation.com/content/202630/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Asked to choose the fairest ways to raise billions, half of the economists backed introducing inheritance taxes. Around a third chose winding back super tax concessions and increased resource taxes.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1734092021-12-09T19:11:03Z2021-12-09T19:11:03ZVital Signs: the case against death duties just got stronger<figure><img src="https://images.theconversation.com/files/436535/original/file-20211209-133881-vfk7rk.png?ixlib=rb-1.1.0&rect=1436%2C129%2C3874%2C2332&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>If you are worried about inequality you probably lament the end of <a href="http://classic.austlii.edu.au/au/journals/UWALawRw/1982/6.pdf">death duties</a>.</p>
<p>At first in Queensland and then in the rest of the country, Australia became one of the <a href="https://researchbank.swinburne.edu.au/file/fa8c1de1-a895-4b6c-b843-3874a82694e1/1/PDF%20%28Published%20version%29.pdf">first nations in the world</a> to abolish death duties in the late 1970s.</p>
<p>Surely an inheritance tax (that’s what a death duty is) would cut the size of inheritances, reducing the intergenerational transmission of inequality.</p>
<p>Actually no, according to a groundbreaking study released on Tuesday by the <a href="https://www.pc.gov.au/research/completed/wealth-transfers">Productivity Commission</a>.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/436519/original/file-20211209-136652-1i1gu8a.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/436519/original/file-20211209-136652-1i1gu8a.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/436519/original/file-20211209-136652-1i1gu8a.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=968&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436519/original/file-20211209-136652-1i1gu8a.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=968&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436519/original/file-20211209-136652-1i1gu8a.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=968&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436519/original/file-20211209-136652-1i1gu8a.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1216&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436519/original/file-20211209-136652-1i1gu8a.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1216&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436519/original/file-20211209-136652-1i1gu8a.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1216&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.pc.gov.au/research/completed/wealth-transfers">Productivity Commission</a></span>
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</figure>
<p>The commission used datasets including tax returns and probate records to look at how much money is passed on in inheritances and gifts and where it goes.</p>
<p>The striking finding is that an awful lot is passed on. </p>
<p>In 2018 it was an astonishing A$120 billion, way in excess of the $80 billion the Australian government spent on health, and approaching the $170 billion it spent on social security and welfare.</p>
<p>An even more astounding finding is that these transfers actually reduced inequality.</p>
<p>I’ll say that again: “reduced inequality”.</p>
<p>One of the authors of the report, Commissioner <a href="https://www.pc.gov.au/about/people-structure/commissioners/catherine-de-fontenay">Catherine de Fontenay</a>, summarised the finding this way:</p>
<blockquote>
<p>When measured against the amount of wealth they already own, those with less wealth get a much bigger boost from inheritances, on average about 50 times larger for the poorest 20% than the wealthiest 20%</p>
</blockquote>
<p>It isn’t that the biggest inheritances don’t go to the already-wealthiest fifth of the population. Of course they do. This graph shows how big, in thousands of dollars.</p>
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<p><strong>Average wealth transfer by wealth quintile (in dollars)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/436640/original/file-20211209-13-10esu8p.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/436640/original/file-20211209-13-10esu8p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436640/original/file-20211209-13-10esu8p.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=259&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436640/original/file-20211209-13-10esu8p.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=259&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436640/original/file-20211209-13-10esu8p.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=259&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436640/original/file-20211209-13-10esu8p.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=326&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436640/original/file-20211209-13-10esu8p.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=326&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436640/original/file-20211209-13-10esu8p.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=326&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Average equivalised wealth transfer received among all people in a three-year period, by initial equivalised wealth quintile.</span>
<span class="attribution"><a class="source" href="https://www.pc.gov.au/research/completed/wealth-transfers">Productivity Commission</a></span>
</figcaption>
</figure>
<hr>
<p>The extra thing the commission discovered was that as a proportion of the wealth they already have, inheritances lift the wealth of the bottom fifth of the population far, far more than that of people better off.</p>
<p>And this isn’t a peculiarly Australian phenomenon. The commission finds it is true in most advanced economies.</p>
<hr>
<p><strong>Average wealth transfer as share of initial wealth</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/436637/original/file-20211209-141979-ek8kjx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/436637/original/file-20211209-141979-ek8kjx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436637/original/file-20211209-141979-ek8kjx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=277&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436637/original/file-20211209-141979-ek8kjx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=277&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436637/original/file-20211209-141979-ek8kjx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=277&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436637/original/file-20211209-141979-ek8kjx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=348&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436637/original/file-20211209-141979-ek8kjx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=348&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436637/original/file-20211209-141979-ek8kjx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=348&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Average equivalised wealth transfer in a three-year period as a share of average initial equivalised wealth by initial wealth quintile.</span>
<span class="attribution"><a class="source" href="https://www.pc.gov.au/research/completed/wealth-transfers">Productivity Commission</a></span>
</figcaption>
</figure>
<hr>
<p>So ought we to make sure inheritance taxes stay dead?</p>
<p>In our forthcoming book “<a href="https://richardholden.org/books">From Free to Fair Markets: Liberalism after COVID</a>”,
Rosalind Dixon and I argue that’s exactly what we should do.</p>
<p>In 2010 the late Emmanuel Farhi and Ivan Werning examined optimal taxation in a setting where society cared about current and future generations.</p>
<p>They found that in such a situation, the best death duty would be <a href="https://dspace.mit.edu/bitstream/handle/1721.1/58803/Farhi-2010-PROGRESSIVE%20ESTATE%20TAXATION.pdf;sequence=2">negative</a> – that we should subsidise inheritances to stop parents consuming too much and children getting too little.</p>
<h2>What about a progressive inheritance tax?</h2>
<p>One way to get the benefits of inheritances and still fight inequality would be to exempt from tax modest-size bequests and tax larger bequests even more. </p>
<p>This could be done by making inheritances of up to, say, $100,000 tax-free, and everything over that taxed (increasingly) heavily.</p>
<p>But there would be a big incentive to come in just under the cap. </p>
<p>Just as retirees <a href="https://www.smh.com.au/lifestyle/life-and-relationships/fleeing-to-the-country-a-cautionary-tale-20210715-p58a2t.html">moved to Queensland</a> to avoid death duties (and appeared to adjust the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=907250">timing</a> of their deaths) retirees with a lot of wealth would find it worthwhile to give big gifts to their children ahead of their deaths – which would have to be caught by a gift duty.</p>
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<strong>
Read more:
<a href="https://theconversation.com/rethink-inheritances-these-days-they-go-to-the-already-middle-aged-122029">Rethink inheritances. These days they go to the already middle-aged</a>
</strong>
</em>
</p>
<hr>
<p>The gift duty might have to take in deposits for houses and childcare and school fees (and to be equitable, perhaps childcare in kind provided by grandparents!).</p>
<p>And then you would get into really murky territory. People would want to exempt things such as homes, which could lead to even more upward pressure on home prices if more and more wealth got transferred in the form of homes.</p>
<h2>It isn’t going to happen</h2>
<p>In any event, in Australia, it isn’t going to happen.</p>
<p>Death duties are common around the world. Across the <a href="https://www.oecd.org/tax/tax-policy/inheritance-taxation-in-oecd-countries-e2879a7d-en.htm">OECD</a>, 24 countries have inheritance or estate taxes, among them the US, the UK, Korea and Germany.</p>
<p>Canada, New Zealand and Australia are among the smaller number of countries that had such taxes and then withdrew them.</p>
<p>The mere (incorrect) assertion that Labor would bring them back helped cost it the 2019 election.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/436307/original/file-20211208-25-30ekn6.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/436307/original/file-20211208-25-30ekn6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436307/original/file-20211208-25-30ekn6.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=329&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436307/original/file-20211208-25-30ekn6.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=329&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436307/original/file-20211208-25-30ekn6.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=329&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436307/original/file-20211208-25-30ekn6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=413&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436307/original/file-20211208-25-30ekn6.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=413&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436307/original/file-20211208-25-30ekn6.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=413&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A mobile billboard parked at locations around Canberra during the 2019 election.</span>
<span class="attribution"><span class="source">Sally Whyte</span></span>
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</figure>
<p>Labor no longer has the stomach for a <a href="https://thenewdaily.com.au/news/2021/11/07/labor-rules-out-carbon-tax/">tax on emissions</a> that would actually work. </p>
<p>It most certainly doesn’t have the stomach for one that would make it harder for parents to pass on things to their children, probably worsen inequality, and complicate the tax system even further.</p>
<p><iframe id="a95Cs" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/a95Cs/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/173409/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President of the Academy of the Social Sciences in Australia.</span></em></p>The Productivity Commission’s startling finding is that passing on wealth actually cuts inequality.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1436042020-07-30T19:58:00Z2020-07-30T19:58:00ZForget a capital gains tax – what New Zealand needs is a tax on inherited wealth<figure><img src="https://images.theconversation.com/files/350314/original/file-20200730-13-4ugeoq.jpg?ixlib=rb-1.1.0&rect=20%2C30%2C6679%2C4396&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>The world’s wealthiest people will transfer US$15.4 trillion in assets to their heirs in the next decade, according to a recent <a href="https://www.wealthx.com/wp-content/uploads/2019/07/Wealth-X_Family-Wealth-Transfer-Report_2019.pdf">report</a>. </p>
<p>Published by specialist data analysts Wealth-X, the report focused on the richest 0.1% (those with net assets worth over US$5 million), but it’s a similar story for the more modestly wealthy baby boomers. </p>
<p>With New Zealand’s average national <a href="https://www.stuff.co.nz/business/117903021/house-prices-shoot-ahead-again-as-majority-of-kiwis-say-ownership-unachievable">house price</a> now over $700,000, the heirs of home-owning boomers (as well as people born before 1945 whose significant wealth is often overlooked) will receive a currently untaxed bonanza. </p>
<p>Ignoring this unprecedented transfer of wealth from people who no longer need it to people who haven’t earned it would be absurd. But equitable tax policy must first overcome political timidity and rhetoric. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-rising-inequality-is-stalling-economies-by-crippling-demand-99075">How rising inequality is stalling economies by crippling demand</a>
</strong>
</em>
</p>
<hr>
<p>As New Zealand’s election approaches, forward-thinking politicians should take heart from Sinn Féin winning a majority in the 2019 Irish election on the promise of making the country’s tax system <a href="https://www.sinnfein.ie/a-fair-tax-system">radically more equitable</a>. </p>
<p>While a capital gains tax (CGT) is <a href="https://www.beehive.govt.nz/release/government-will-not-implement-capital-gains-tax">off the table</a> for now, tax arrangements are never set in stone and voters can be open to change.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1118343240762019840"}"></div></p>
<h2>Taxing inheritance is nothing new</h2>
<p>New Zealand first taxed inter-generational capital transfers in 1866. However, the rate of estate duty was reduced to zero in 1993 and gift duty was scrapped in 2011. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2439053">According</a> to tax law specialist Michael Littlewood:</p>
<blockquote>
<p>These taxes for many years enjoyed broad political support. Indeed, it was widely regarded as obvious that a significant part – perhaps as much as 50% or so – of every large estate ought to go to the state. </p>
</blockquote>
<p>Taxing a person’s wealth when they no longer need it, provided a reasonable exemption is made to support dependants, has been usual since Roman times. In the modern era, inter-generational wealth was seen as eminently taxable, too. Indeed, progressive tax rates were applied to estate taxes before they were first used for income taxes. </p>
<p>In 1979 Australia became the first developed country to abolish estate duty (at both state and federal levels). As analysts Sam Reinhardt and Lee Steel <a href="https://treasury.gov.au/publication/economic-roundup-winter-2006/a-brief-history-of-australias-tax-system">pointed out</a>, support for estate taxes had declined despite “various tax review committees recommending refinements to improve the equity, efficiency and simplicity of the tax”. </p>
<h2>Politics gets in the way</h2>
<p>In New Zealand, Te Herenga Waka—Victoria University’s 2010 <a href="https://www.wgtn.ac.nz/sacl/centres-and-institutes/cagtr/pdf/tax-report-website.pdf">tax working group</a> didn’t consider reintroducing an estate tax or retaining the gift duty then in force. It argued that reforms in the late 1980s had “improved the efficiency and equity of the tax system”. </p>
<p>Certainly, stamp duty is an unlamented tax – although many jurisdictions try to use it to cool overheated housing markets. But it’s not clear why the working group considered estate taxes inefficient or inequitable. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/new-zealands-proposed-capital-gains-tax-could-nudge-taxpayers-to-invest-in-art-instead-of-property-112765">New Zealand’s proposed capital gains tax could nudge taxpayers to invest in art instead of property</a>
</strong>
</em>
</p>
<hr>
<p>Unfortunately, the <a href="https://taxworkinggroup.govt.nz/resources/terms-reference-tax-working-group">terms of reference</a> of the next tax working group, established by the Labour-led government after the 2017 election, specifically excluded an inheritance tax. While there were good theoretical reasons for such a tax, group member Geof Nightingale <a href="https://www.stuff.co.nz/business/106050956/inheritance-tax-good-economics-and-the-politics-may-be-better-than-they-seem">said</a>, it “breaks down at the politics”: </p>
<blockquote>
<p>Inheritance taxes are intensely disliked, so if you haven’t got one it’s very hard to put one in.</p>
</blockquote>
<p>The arguments against estate taxes are well rehearsed – usually accompanied by emotive references to “death taxes”. But, in the long term, the current ideological opposition to taxing inter-generational wealth transfers may prove to be an anomaly. </p>
<p>One simple reason for reviving the debate about such a tax is demographic: baby boomers, the wealthiest generation that has ever lived, will increasingly start dying during the 2020s. </p>
<p>Tax policymakers cannot ignore the opportunity – arguably the moral imperative – of taxing and redistributing those transfers. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1277055371455066112"}"></div></p>
<h2>Millennials and Gen X will be the winners</h2>
<p>There remain three challenges to achieving a fairer tax based on inter-generational wealth. </p>
<p>First, the application of tax needs to shift from the deceased to the living. In other words, we need to focus on the recipient of the wealth transfer. Ireland’s <a href="https://www.revenue.ie/en/tax-professionals/tdm/capital-acquisitions-tax/cat-collector-general-district-guidelines.pdf">capital acquisitions tax</a> (CAT) applies a flat rate of 33% to accumulated gifts and inheritances over the relevant threshold. </p>
<p>Unlike a CGT, which can be perceived as penalising business owners, a CAT targets unearned windfalls from an accident of birth. This should make a CAT more politically acceptable than a CGT. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/if-you-want-a-fair-inheritance-tax-make-it-a-tax-on-income-33654">If you want a fair inheritance tax, make it a tax on income</a>
</strong>
</em>
</p>
<hr>
<p>Second, the younger generations most critical of baby boomers’ “unfair” acquisition of wealth (Gen X and millennials) must accept that taxing this unprecedented transfer of wealth will promote both inter- and intra-generational fairness. </p>
<p>If we don’t tax and redistribute these transfers, wealth inequalities will be exacerbated and entrenched among future generations. </p>
<p>And finally, arguments in favour of a more equitable system have to overcome the rhetoric of “death taxes”. As far back as the 1960s, Canada’s Royal Commission on Taxation did this by popularising the idea that “<a href="https://www.thecanadianencyclopedia.ca/en/article/royal-commission-on-taxation">a buck is a buck</a>”, no matter how it is earned. </p>
<p>In other words, if you have the money you can pay tax, whether that money comes from labour, investment or inheritance.</p>
<p>So far, only the Greens are proposing any <a href="https://www.stuff.co.nz/national/politics/300044327/the-crucial-feature-of-the-greens-wealth-tax-that-would-exempt-most-family-homes">tax on wealth</a> as part of their election policy offering. But with the generational clock ticking, it’s maybe time for New Zealand to think about getting a CAT.</p><img src="https://counter.theconversation.com/content/143604/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Barrett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As the adult children of baby boomers start inheriting their parents’ wealth, it’s time we looked seriously at taxing this unearned income.Jonathan Barrett, Lecturer, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1242402019-10-02T13:54:40Z2019-10-02T13:54:40ZIf politicians are serious about tackling inequality they need to properly overhaul the tax system – here’s how<figure><img src="https://images.theconversation.com/files/295205/original/file-20191002-49397-4du61i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/miniature-people-standing-on-piles-different-1072789088?src=2mVh9n6E4wpWtpghlusSOw-1-0">Shutterstock</a></span></figcaption></figure><p>Inequality has shot to the top of the agenda <a href="https://www.ifs.org.uk/inequality/wp-content/uploads/2019/05/The-IFS-Deaton-Review-launch.pdf">across the political spectrum</a>. Politicians, activists, and even <a href="https://www.bloomberg.com/news/articles/2019-06-24/billionaires-from-soros-to-pritzker-heirs-call-for-wealth-tax">billionaires</a> increasingly call for more radical measures to tackle the problem.</p>
<p>Britain’s Conservative government proclaimed the end to austerity in <a href="https://www.bbc.co.uk/news/business-49577250">its September spending review</a>. Its party conference also discussed <a href="https://conservativepartyconference.com/agenda">providing more equal access</a> to education and social services, along with plans to increase the minimum wage.</p>
<p>Meanwhile, the <a href="https://labour.org.uk/manifesto/creating-economy-works/">Labour party</a> vouched to raise taxes on corporate profits, incomes of the richest earners, and <a href="https://labour.org.uk/press/financial-transaction-tax-report-john-mcdonnell-responds/">transactions in the financial sector</a>. At its recent party conference, it announced <a href="https://labour.org.uk/press/mcdonnell-commits-labour-shorter-working-week-expanded-free-public-services-part-labours-vision-new-society/">an expansive programme of free public services</a>. </p>
<p>Until recently, the opposite kind of measures <a href="https://www.theguardian.com/politics/2003/aug/06/society.labour">were a priority</a>. Lowering taxes for both business and the wealthy, and <a href="https://theconversation.com/george-osbornes-spending-review-risks-creating-a-public-service-diaspora-45060">rolling back public spending</a> in favour of free market competition were seen as a lasting legacy of Ronald Reagan and Margaret Thatcher. </p>
<p><a href="https://www.open.edu/openlearn/society-politics-law/understanding-economic-inequality/content-section-0?active-tab=description-tab">Some argue</a> that inequality is necessary to give people incentives to compete and innovate, ultimately making the economic pie bigger for everyone. Thatcher halved <a href="https://www.telegraph.co.uk/tax/income-tax/labour-will-take-tax-rates-back-1970s/">the tax rate on highest incomes in the UK</a> from 80% to 40%, where it has hovered since. And <a href="https://www.theguardian.com/news/datablog/2010/apr/25/uk-public-spending-1963">public spending as a proportion of UK GDP fell</a> from nearly 50% in the mid-1970s to less than 40% in the early 2000s. </p>
<p>But at the same time inequality levels have become untenable. In the UK, <a href="https://wid.world/country/united-kingdom/">the richest 1% owned</a> 20% of all personal wealth in 2012 and earned nearly 12% of pre-tax national income in 2016. The numbers are even higher <a href="https://wid.world/country/usa/">in the US</a>, and are also increasing globally, including in <a href="https://wid.world/country/india">India</a> and <a href="https://wid.world/country/china">China</a>. </p>
<p>Average economic growth may be ticking upwards but there are too many visible disparities in societies where <a href="https://www.independent.co.uk/news/uk/home-news/empty-homes-uk-homelessness-housing-crisis-data-a8818326.html">record levels of homelessness</a> co-exist with a high and rising number of empty homes.</p>
<h2>Addressing the problem</h2>
<p>More information on the scale of inequality – and its <a href="https://www.theguardian.com/inequality/2018/sep/18/kate-pickett-richard-wilkinson-mental-wellbeing-inequality-the-spirit-level">consequences</a> – has put pressure on politicians to address the problem. In fact, elements of both the Labour and Conservative parties’ proposals are needed. Complementing tax increases with higher public spending has more potential to successfully reduce inequality in the long-run than either of these policies alone.</p>
<p><a href="https://www.ineteconomics.org/uploads/papers/WP_54-Lazonick-Value-Extracting-CEO-Mod-2017.pdf">Advocates of higher taxes</a> note that resources accumulated by the rich are largely saved and invested in personal assets such as luxury houses or yachts rather than reinvested in innovation and jobs. Similarly, an increasing portion of corporate profits is not spent on production: <a href="https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2018/business-investment-cash-holding-and-uncertainty-since-the-great-financial-crisis.pdf">productive investment has withered</a> despite corporations building up <a href="https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/corporate-finance/deloitte-uk-cash-paradox-jan-14.pdf">record cash reserves</a>. </p>
<p>The poorest earners <a href="https://www.independent.co.uk/news/uk/home-news/lowest-earners-more-tax-richest-office-national-statistics-inequality-council-tax-vat-equality-trust-a7704331.html">bear a greater tax burden</a> than the rich. So there is merit – and <a href="https://www.theguardian.com/business/2019/mar/19/most-people-want-higher-taxes-on-rich-to-support-poor-oecd">scope</a> – to increase rates on the highest earners to redistribute economic resources more fairly. </p>
<h2>Taxing wealth not income</h2>
<p>But this is only part of the solution. Many economists, inspired by Thomas Piketty’s <a href="https://theconversation.com/piketty-has-redefined-capital-after-200-years-of-confusion-25770">seminal work Capital</a>, argue for explicit taxes on wealth. <a href="https://www.cnbc.com/2019/02/12/bill-gates-supports-wealth-tax-like-aoc-but-income-is-a-misfocus.html">As the billionaire Bill Gates has pointed out</a>, most resources of the rich are contained in their assets rather than in their income streams, and so taxing wealth directly would be more effective in curbing inequality. </p>
<p>It is also vital to tighten the screws on the way transfers of wealth are taxed. For instance, inheritance taxes are in desperate need of reform, as they currently raise <a href="https://www.theguardian.com/business/2019/apr/03/inheritance-tax-loopholes-allowing-super-rich-to-pay-lower-rates">notoriously low amounts of revenue</a>.</p>
<p>Another proposal for taxing wealth transfers targets the financial sector. Short-term speculative trading between financial institutions <a href="https://theconversation.com/financial-speculation-the-good-the-bad-and-the-parasitic-33613">was responsible for triggering the 2007-08 financial crisis</a>. Taxing financial transactions could reduce the instability that results from risky financial activity by <a href="https://progressiveeconomyforum.com/wp-content/uploads/2019/09/Reinforcing-Resilience.pdf">increasing the costs of speculation</a>. This kind of tax could also lower inequality by making risky financial instruments less desirable and decreasing the potential gains available to financial elites.</p>
<h2>Preventing inequality from the get-go</h2>
<p>Tax reform is much needed. But even with strong political will, <a href="https://voxeu.org/article/missing-profits-nations">taxes tend to be avoided and evaded</a> through legal and illegal means respectively. A more comprehensive strategy is required, focused on “predistribution” – this means preventing inequalities from developing in the first place.</p>
<p><a href="https://madeinamericathebook.wordpress.com/2019/03/04/fixing-inequality-more-opportunity-is-not-the-answer/">Current proposals</a> for predistribution policies rightly target housing – one of the biggest financial concerns for people. Home ownership gives a boost to household wealth, but it may also make it more unstable if backed by large mortgage debt. </p>
<p>The 2007-08 crisis showed the pitfalls of relying on private markets to supply housing, with many families experiencing big losses as <a href="https://www.businessinsider.com/how-2007-financial-crisis-transformed-uk-housing-market-2017-7?r=US&IR=T">house prices plummeted</a>. Even programmes such as Help to Buy – which makes it cheaper for first-time buyers to put down a deposit on a home – relies on private developers to supply housing and has been widely <a href="https://www.theguardian.com/commentisfree/2019/jun/14/help-to-buy-well-off-housing-crisis-afford-market">criticised for fuelling inequality</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/295209/original/file-20191002-49365-1lghad8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/295209/original/file-20191002-49365-1lghad8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=390&fit=crop&dpr=1 600w, https://images.theconversation.com/files/295209/original/file-20191002-49365-1lghad8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=390&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/295209/original/file-20191002-49365-1lghad8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=390&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/295209/original/file-20191002-49365-1lghad8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=489&fit=crop&dpr=1 754w, https://images.theconversation.com/files/295209/original/file-20191002-49365-1lghad8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=489&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/295209/original/file-20191002-49365-1lghad8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=489&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Housing has to be a focus.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/row-typical-english-terraced-houses-409994218?src=0BB2Ny--daFXkXPGOwp4Aw-1-10">Shutterstock</a></span>
</figcaption>
</figure>
<p><a href="https://www.sciencedirect.com/science/article/abs/pii/S0954349X18302911?via%253Dihub">In a recent paper</a>, I found that people do not benefit equally from holding assets such as housing supplied by private providers. Women, people of colour, millennials and low-income families experience lower improvements in their financial well-being from holding wealth compared to others. This is because they are more financially vulnerable and their access to wealth, as well as the way that the value of this wealth changes over time, is not just down to individual decisions but is largely influenced by economic policy and the way in which financial markets operate. So a careful strategy of public provision of key assets is needed to support more vulnerable people and reduce inequality.</p>
<p>Politicians have started to notice the importance of these types of policies. The Labour party has committed to <a href="https://www.itv.com/news/2019-09-23/mcdonnell-backs-logical-approach-to-delay-on-labour-brexit-policy/">build a million new homes</a> and <a href="http://labour.org.uk/wp-content/uploads/2018/04/Housing-for-the-Many-final.pdf">regulate the private rental market</a> if elected. In the US, Bernie Sanders, a 2020 US presidential election hopeful, is promising “housing for all”, and similar initiatives <a href="https://www.marketwatch.com/story/heres-where-2020-presidential-candidates-including-elizabeth-warren-and-kamala-harris-stand-on-affordable-housing-2019-07-25">have been mentioned by other candidates</a>.</p>
<p>One initiative alone won’t fix inequality – a large overhaul is needed. A successful strategy should be comprehensive, complementing tax reform with predistribution policies. There are many potential difficulties to consider, but with political will in place, the time is ripe for systemic change.</p><img src="https://counter.theconversation.com/content/124240/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hanna Szymborska does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Inequality has reached untenable levels – public spending and wealth taxes are needed.Hanna Szymborska, Lecturer in Economics, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1220292019-08-19T20:02:30Z2019-08-19T20:02:30ZRethink inheritances. These days they go to the already middle-aged<figure><img src="https://images.theconversation.com/files/288496/original/file-20190819-123745-1jimjf9.jpg?ixlib=rb-1.1.0&rect=188%2C307%2C3299%2C1309&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Most inheritances go to middle-aged Australians who don't need help.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Inheritances can have an enormous impact on finances and lives. </p>
<p>Yet in Australia we know surprisingly little about who gets them and how big they are. </p>
<p>New <a href="https://grattan.edu.au/report/generation-gap/">Grattan Institute research</a> provides some answers.</p>
<h2>Inheritances are big and growing</h2>
<p>A sample of estates from Victoria’s probate office suggests the median estate in Victoria is worth around A$500,000. That’s likely to be close to what it is Australia-wide. </p>
<p>But many are much larger. About 20% are worth more than A$1 million, and 7% are more than A$2 million. Property is the largest component, accounting for about half of the average value. </p>
<p>The main beneficiaries of “final” estates (estates without a surviving spouse) are children, who receive about three-quarters of all inheritance money. </p>
<p>Other family members, such as nieces, nephews and grandchildren, receive about 20%. Friends get about 4%, and charities 2%.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/for-the-first-time-in-ages-were-setting-up-a-generation-to-be-worse-off-121983">For the first time in ages, we're setting up a generation to be worse off</a>
</strong>
</em>
</p>
<hr>
<p>Average inheritances are growing about 2 percentage points faster than inflation each year, which is a good deal faster than wages or gross domestic product. </p>
<p>There are reasons to believe they will soon grow even faster. </p>
<p>Net wealth has grown strongly among older households. Households headed by people aged over 75 now have an average of A$1 million in assets, up from A$400,000 for a household headed by a person of the same age in 1994.</p>
<p>And most retirees <a href="https://grattan.edu.au/report/money-in-retirement/">don’t draw down</a> on their savings. </p>
<p>Indeed, many are net savers through much of their retirement, meaning there’s only one place their accumulated property and superannuation wealth can go: into bequests.</p>
<h2>Inheritances are going to the already old…</h2>
<p>These days, inheritances generally don’t arrive when people are saving for a house or trying to raise a young family. </p>
<p>More than 80% of money passed down from parents goes to people aged 50 and over.</p>
<p>The most common age bracket in which people to receive an inheritance from parents is 55-59. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/288479/original/file-20190819-123754-94gcst.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/288479/original/file-20190819-123754-94gcst.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/288479/original/file-20190819-123754-94gcst.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=332&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288479/original/file-20190819-123754-94gcst.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=332&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288479/original/file-20190819-123754-94gcst.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=332&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288479/original/file-20190819-123754-94gcst.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=417&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288479/original/file-20190819-123754-94gcst.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=417&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288479/original/file-20190819-123754-94gcst.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=417&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<hr>
<p>It’s the result of good news – parents are living longer. </p>
<p>But as life expectancy grows still further, it will mean inheritances increasingly supplement the retirement savings of middle-aged Australians rather than help young people get into housing.</p>
<h2>…and the already wealthy</h2>
<p>The wealthiest 20% of Australians get 38% of inheritance money; the poorest 20% get only 8%.</p>
<p>It means the growing wealth of Baby Boomers is likely to end up concentrated in the hands of a select group relatively well-off Generation Xers and Millennials rather than being widely spread.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/288483/original/file-20190819-123754-uayz44.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/288483/original/file-20190819-123754-uayz44.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/288483/original/file-20190819-123754-uayz44.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=328&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288483/original/file-20190819-123754-uayz44.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=328&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288483/original/file-20190819-123754-uayz44.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=328&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288483/original/file-20190819-123754-uayz44.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=412&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288483/original/file-20190819-123754-uayz44.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=412&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288483/original/file-20190819-123754-uayz44.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=412&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>It will reinforce the advantages already enjoyed by people with well-off parents, including better schooling, better connections, and a greater ability to take financial risks because of a parental safety net. </p>
<p>If (as is possible) inheritances end up becoming the dominant route to wealth in Australia surpassing lifetime earnings, there will be less incentive for ordinary Australians to attempt to get ahead through individual endeavour. </p>
<p>We will have entered what French economist Thomas Piketty calls a “<a href="https://www.pbs.org/newshour/nation/how-pikettys-inequality-theory-explains-mr-darcys-wealth">Jane Austen world</a>”.</p>
<h2>We don’t tax inheritances…</h2>
<p>Calm debate on policy setting around inheritances is <a href="https://insidestory.org.au/death-and-taxes/">hard to come by</a> in Australia.</p>
<p>Inheritances and gifts have been tax-free since the 1970s. </p>
<p>Australia is one of only <a href="https://stats.oecd.org/index.aspx?DataSetCode=REV">seven</a> OECD countries without any inheritance, estate, or gift taxes. Despite the economic arguments for inheritance taxes, there seems to be little appetite to bring them back.</p>
<h2>…if anything, we subsidise them</h2>
<p>Not taxing inheritances is one thing, but actively subsidising them is another.</p>
<p>Superannuation tax breaks were intended to encourage people to save for their retirement and to take pressure off the age pension system. </p>
<p>But given that many retired Australians <a href="https://grattan.edu.au/report/money-in-retirement/">do not draw down on their capital</a>, a large part of the super tax concessions simply boosts the size of bequests.</p>
<p>Super death benefits tax is intended to claw back the superannuation tax breaks when the money is passed on, in order to ensure that the government doesn’t subsidise inheritances. </p>
<p>But, at 15%, the rate is too low to capture the value of the accumulated tax breaks. And it can easily be avoided by retirees withdrawing funds tax-free and then contributing them back as a post-tax contribution, which is tax-free when passed on.</p>
<p>The special treatment of the family home in the age pension means test also acts to boost inheritances at taxpayers’ expense. Without it there would less to pass on.</p>
<h2>It’s time to claw some of them back</h2>
<p>There is little justification for taxpayers subsidising inheritances. Policy changes could help.</p>
<p>We recommend a higher tax on super bequests paid to non-dependents to better capture the value of the super tax breaks that are passed on rather than used for retirement. The cap on post-tax super contributions should also be lowered, to limit the re-contribution strategies.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/house-prices-and-demographics-make-death-duties-an-idea-whose-time-has-come-114175">House prices and demographics make death duties an idea whose time has come</a>
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</em>
</p>
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<p>The age pension assets test should include part of the value of the family home, perhaps the part above A$500,000. Seniors with higher-value properties should be allowed to borrow against their home using the Pension Loans Scheme. </p>
<p>This would give them the ability to stay in their home but would mean that some of the wealth that would otherwise be passed to heirs (most likely in their 50s) would instead be used to fund them, taking pressure off the pension.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-policies-come-and-policies-go-but-surely-we-shouldnt-be-subsidising-inheritances-116415">Vital Signs: policies come and policies go, but surely we shouldn't be subsidising inheritances</a>
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</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/122029/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Danielle Wood does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Not only do we not tax inheritances, we actually subsidise them, making the already well off even better off.Owain Emslie, Senior Associate, Grattan InstituteDanielle Wood, Chief executive officer, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1164152019-05-02T20:13:23Z2019-05-02T20:13:23ZVital Signs: policies come and policies go, but surely we shouldn’t be subsidising inheritances<figure><img src="https://images.theconversation.com/files/272223/original/file-20190502-103060-wlk3sa.jpg?ixlib=rb-1.1.0&rect=0%2C307%2C3792%2C2149&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's one thing to oppose a tax on inheritances. It's quite another to subsidise inheritances.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There’s an election on. Half a million of us have already voted. There’s just two weeks to go.</p>
<p>With that comes more intense scrutiny of different policies (which is good) and disingenuous claims by those with vested interests (which is not so good).</p>
<p>And perhaps the most contentious policy Labor is taking to the election is its proposal to eliminate dividend imputation cheques for people with excess franking credits. </p>
<p>Peter Martin has provided an excellent explanation of <a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">what franking credits are and how dividend imputation works</a> which I won’t recapitulate.</p>
<p>What’s relevant here is that Labor wants to undo a Howard government innovation that sends cheques to people fortunate enough to receive income from shares and not pay tax. It exists nowhere else in the world.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">Words that matter. What’s a franking credit? What’s dividend imputation? And what's 'retiree tax'?</a>
</strong>
</em>
</p>
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<p>Naturally retirees who don’t pay tax and have become used to “franking credit” cheques" along with dividend payments are unhappy.</p>
<p>Take this example, published in the <a href="https://www.smh.com.au/money/super-and-retirement/self-funded-retirees-could-earn-less-than-age-pension-20190429-p51ic1.html">Sydney Morning Herald</a> on Thursday.</p>
<p>Alan and Bev are in their eighties, own their own home, and have A$800,000 in shares. Those shares pay them dividends of $32,000 a year. Along with those dividend cheques they get a $13,000 cheque from the government, which takes their annual income to $45,000.</p>
<h2>Alan and Bev don’t want to spend what they’ve got</h2>
<p>The thought of having to exist on only $32,000, leaves them “wondering how they can reduce their already tight budget”.</p>
<p>Alan and Bev might have realised that could draw down on their $800,000
a little each year. </p>
<p>If, for example, they took out $15,000 a year and earned 4% (their current rate) on what was left they would</p>
<ul>
<li><p>have more post-tax income than they do now, and </p></li>
<li><p>still have about $400,000 saved in 20 years time, by which time they would be over 100 years old and, statistically speaking, rare.</p></li>
</ul>
<p>I understand that they mightn’t want to do that, and I can understand that their adult children mightn’t want them to do it either, because if the parents don’t use the money they have saved, the children will be in line to inherit it. </p>
<h2>Why should we subsidise their desire not to?</h2>
<p>The position of the “independent financial expert” who wrote the article is a little odd. She doesn’t seem to want it to happen either.</p>
<p>The Future of Financial Advice Act requires her to put <a href="https://asic.gov.au/regulatory-resources/financial-services/future-of-financial-advice-reforms/fofa-background-and-implementation/">the best interests of her clients</a> ahead of her own.</p>
<p>Perhaps she did, and advised them to run down some of their savings. Perhaps they told her that in their view it was in their best interests not to, and to leave them all to their children.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-newest-election-faultline-isnt-left-versus-right-its-young-versus-old-and-its-hardening-116079">The newest election faultline isn't left versus right, it's young versus old -- and it's hardening</a>
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</em>
</p>
<hr>
<p>However, I as a taxpayer don’t like paying them a subsidy that allows them to do that when they could (should) be using their own money to pay for things they can well afford.</p>
<p>The payment of dividend cheques to people who pay insufficient tax costs $6 billion a year - soon to be $8 billion.</p>
<p>I don’t think we should be taxing inheritances through a <a href="https://theconversation.com/house-prices-and-demographics-make-death-duties-an-idea-whose-time-has-come-114175">death duty or an estate tax</a>. Not at all. But right now we have what amounts to as an estate subsidy, one for which it is hard to see the economic rationale.</p>
<h2>Labor wants to wind back an unusual subsidy</h2>
<p>Dividend imputation is an important principle and a was a good policy when Paul Keating introduced it as treasurer in 1987. </p>
<p>It prevents the double taxation of company profits – where the company pays, say, 30% tax on profits and then an individual pays another as much as another 49% on the dividends. That kind of double taxation was unprincipled, deterred capital formation and investment and harmed employment and economic growth.</p>
<p>Dividend imputation paid to the shareholder the company tax paid in return for the shareholder paying tax.</p>
<p>In 2001, the Howard government extended it to shareholders who didn’t pay tax, in their cases turning “no double taxation” of company profits into “no taxation” of company profits.</p>
<p>Then in 2007 he changed the tax rules so that <a href="http://simplersuper.treasury.gov.au/documents/decision/html/final_decision_full.asp">many more retirees didn’t pay tax</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/who-are-the-wealthy-retirees-targeted-in-labors-plans-94173">Who are the wealthy retirees targeted in Labor's plans?</a>
</strong>
</em>
</p>
<hr>
<p>Labor’s policy reverses the first (international unique) extension, in part because it has become extraordinarily expensive.</p>
<p>It’s understandable that retirees such as Alan and Bev feel that they are losing something. They are. But the main thing they are losing is a government subsidy that would enable them to hand all of their savings on to their children without dipping into them to look after themselves.</p>
<p>That’s the “gift” the opposition leader Bill Shorten says he wants to wind back.</p><img src="https://counter.theconversation.com/content/116415/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The media loves a victim, but sympathy for someone who won’t spend what they’ve got because they’re saving for their children is taking it too far.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1031142018-09-12T13:20:23Z2018-09-12T13:20:23ZAnthill 29: Inheritance<figure><img src="https://images.theconversation.com/files/235990/original/file-20180912-133901-1qnyrtv.jpg?ixlib=rb-1.1.0&rect=0%2C31%2C1000%2C881&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Gennadiy Solovyev/Shutterstock.</span></span></figcaption></figure><p>What do we pass onto the next generation when we’re gone? In this episode of The Anthill podcast we bring you three stories from academics who study aspects of inheritance – from inherited wealth, to the natural inheritance we leave our children, and the genetic inheritance held within our DNA. </p>
<p>The way countries tax inherited wealth varies widely across the world. In the UK, <a href="https://www.gov.uk/inheritance-tax">inheritance tax</a> is 40% on everything above a £375,000 threshold (for properties the threshold rises to £1m), yet it doesn’t exist in Australia and Canada and works differently in France and Scandinavia. In this episode, Janette Rutterford, professor of financial management at Open University, tracks the history of inheritance tax in the UK – and the loopholes people use to get around paying it. And we ask Danny Dorling, Halford Mackinder professor of geography at the University of Oxford whether inheritance tax is fit for purpose – and what could replace it. </p>
<hr>
<p><strong><em>Click <a href="https://theconversation.com/uk/podcasts/the-anthill">here</a> to listen to more episodes of The Anthill, on themes including <a href="https://theconversation.com/anthill-26-twins-98271">Twins</a>, <a href="https://theconversation.com/anthill-25-intuition-96677">Intuition</a>, and <a href="https://theconversation.com/anthill-27-confidence-100183">Confidence</a>. And browse <a href="https://theconversation.com/podcasts">other podcasts</a> from The Conversation here.</em></strong> </p>
<hr>
<p>In the second segment, we focus on natural inheritance. Mass extinctions of species mean that the wildlife our ancestors grew up with is vanishing and it may mean future generations are left with a smaller and emptier view of nature. Scientists believe our perception of nature and wilderness is shrinking, with each new generation inheriting a smaller picture of what a healthy ecosystem looks like. We ask biologists Lizzie Jones from Royal Holloway University and Chris Sandom from the University of Sussex to help explain the concept of this “shifting baseline syndrome”. And Newcastle University’s Niki Rust talks through one of the options for dealing with it – <a href="https://theconversation.com/uk/topics/rewilding-7773">rewilding</a>, and what happened to lions she observed who had been reintroduced into reserves in Africa. </p>
<p>Sandom and Jones have also written an accompanying article for The Conversation, showcasing <a href="https://theconversation.com/forget-environmental-doom-and-gloom-young-people-draw-alternative-visions-of-natures-future-102004">drawings by young people</a> of alternative visions for nature’s future – and graphic imaginings by the artist Daniel Locke on what Britain would have looked like hundreds of thousands of years ago.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/235767/original/file-20180911-144458-1hbdyi9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Britain 125,000 years ago: giant deer, straight-tusked elephants and rhinos.</span>
<span class="attribution"><a class="source" href="http://www.daniellocke.com/">Daniel Locke</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In the final segment of this episode we delve into the debate on genes and intelligence – and whether children’s success at school depends on their DNA. Kaili Rimfeld, a postdoctoral researcher at King’s College London, explains her new study – <a href="https://theconversation.com/genes-shown-to-influence-how-well-children-do-throughout-their-time-at-school-102520">which you can read about on The Conversation</a> – which showed that genes influence how well children do throughout their time at school. She explains how twins studies have helped scientists to understand the “heritability” of intelligence, as well as <a href="https://theconversation.com/your-genes-can-help-predict-how-well-youll-do-in-school-heres-how-we-cracked-it-62848">new tools</a>, which are helping give more personalised predictions for educational achievement. </p>
<p>But some social scientists, including as Daphne Martschenko, a PhD researcher in education at the University of Cambridge, are concerned about the ethical implications of this line of research. She recounts the controversial history of research linking genes and intelligence – which she’s just written <a href="https://osf.io/preprints/socarxiv/74b8m/">a new paper</a> about – and why she’s concerned about how such research might trickle down into the classroom in future. </p>
<p><a href="https://itunes.apple.com/gb/podcast/the-anthill/id1114423002?mt=2"><img src="https://images.theconversation.com/files/233721/original/file-20180827-75984-1gfuvlr.png" alt="Listen on Apple Podcasts" width="268" height="68"></a> <a href="https://www.google.com/podcasts?feed=aHR0cHM6Ly90aGVjb252ZXJzYXRpb24uY29tL3VrL3BvZGNhc3RzL3RoZS1hbnRoaWxsLnJzcw%3D%3D"><img src="https://images.theconversation.com/files/233720/original/file-20180827-75978-3mdxcf.png" alt="" width="268" height="68"></a></p>
<p><a href="https://www.stitcher.com/podcast/the-conversation/the-anthill"><img src="https://images.theconversation.com/files/233716/original/file-20180827-75981-pdp50i.png" alt="Stitcher" width="300" height="88"></a> <a href="https://tunein.com/podcasts/Technology-Podcasts/The-Anthill-p877873/"><img src="https://images.theconversation.com/files/233723/original/file-20180827-75984-f0y2gb.png" alt="Listen on TuneIn" width="318" height="125"></a></p>
<hr>
<p><em>The Anthill theme music is by Alex Grey for Melody Loops.
Music in the inheritance tax segment <a href="http://freemusicarchive.org/music/Lee_Rosevere/The_Big_Loop_-_FML_original_podcast_score/Lee_Rosevere_-_The_Big_Loop_-_FML_original_podcast_score_-_10_A_List_of_Ways_to_Die">A list of ways to die</a> by Lee Rosevere and <a href="http://freemusicarchive.org/music/A_A_Aalto/Fest/Bazaar">Bazaar</a> by A.A.Alto, both from the Free Music Archive. Bird sounds in the shifting baseline segment is <a href="https://freesound.org/people/reinsamba/">Nightingales</a> by reinsamba and music is <a href="http://freemusicarchive.org/music/Podington_Bear/">Nature Kid</a> by Podington Bear via Free Music Archive. Music in the genes and intelligence segment is <a href="https://incompetech.com/music/royalty-free/index.html?isrc=USUAN1200102">Hidden Agenda</a> by Kevin MacLeod via Incompetech and <a href="http://freemusicarchive.org/music/Kai_Engel/The_Scope/Kai_Engel_-_The_Scope_-_02_Cutrains_are_Always_Drawn">Curtains Are Always Drawn</a> by Kai Engel. Archive audio on the Human Genome Project from the <a href="https://videocast.nih.gov/summary.asp?Live=2405&bhcp=1">US Department of Health & Human Services</a>.</em></p>
<p><em>Thank you to City, University of London’s Department of Journalism for letting us use their studios to record The Anthill. And to Anouk Millet who helped with editing and production for this episode.</em></p><img src="https://counter.theconversation.com/content/103114/count.gif" alt="The Conversation" width="1" height="1" />
From wealth, to the natural world, to genes and intelligence, a podcast exploring the theme of inheritance.Will de Freitas, Environment + Energy Editor, UK editionAnnabel Bligh, Business & Economy Editor and Podcast Producer, The Conversation UKGemma Ware, Head of AudioJack Marley, Environment + Energy Editor, UK editionLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1023242018-08-30T21:53:08Z2018-08-30T21:53:08ZShould Canada have an inheritance tax?<figure><img src="https://images.theconversation.com/files/233984/original/file-20180828-86123-bgx6ta.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Should wealthy Canadians pay an inheritance tax? In this photo from 2002, David Thomson listens during the annual meeting of Thomson Corp. The Thomsons are considered Canada's richest family.</span> <span class="attribution"><span class="source">(CP PHOTO/Aaron Harris)</span></span></figcaption></figure><p>One of the added advantages of being born into a wealthy family in Canada is that neither you nor your progeny have to pay an inheritance tax. That’s because Canada is the only G7 country that doesn’t tax estates or wealth handed down from one generation to another (aside from small probate fees in some provinces). But a <a href="https://www.policyalternatives.ca/publications/reports/born-win">new report says that should change</a>.</p>
<p>The <a href="https://www.policyalternatives.ca/">Canadian Centre for Policy Alternatives</a>, in its report called “Born to Win,” says a Canadian inheritance tax “could go a long way to curbing the tendency of Canada’s tax system to heighten socially, politically and economically harmful levels of wealth concentration in Canada.”</p>
<p>It noted the average net worth of Canada’s 87 wealthiest families rose by 37 per cent between 2012 and 2016 — from $2.2 billion to $3.0 billion — while the net worth of middle class families increased by only 16 per cent (from $264,000 to $305,000) over the same period. </p>
<h2>Skewing the playing field</h2>
<p>The report’s recommendations are inherently linked to the maintenance of inequality from one generation over the other — a skewing of the playing field of life from the start.</p>
<p>Should our laws focus on promoting equality of opportunity and social justice or the individual freedom to bequeath and right to dispose of one’s property? </p>
<p>Debates on this issue are not new. Ideas about restricting or abolishing inheritance have been floated by Western social thinkers for nearly 300 years and probably more.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/233988/original/file-20180828-86150-afy24c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/233988/original/file-20180828-86150-afy24c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=288&fit=crop&dpr=1 600w, https://images.theconversation.com/files/233988/original/file-20180828-86150-afy24c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=288&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/233988/original/file-20180828-86150-afy24c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=288&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/233988/original/file-20180828-86150-afy24c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=362&fit=crop&dpr=1 754w, https://images.theconversation.com/files/233988/original/file-20180828-86150-afy24c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=362&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/233988/original/file-20180828-86150-afy24c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=362&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The rates of estate, inheritance or gift taxes in G7 countries (2017)</span>
<span class="attribution"><span class="source">Born to Win, Canadian Centre for Policy Alternatives</span></span>
</figcaption>
</figure>
<p><a href="https://plato.stanford.edu/entries/montesquieu/">Charles de Montesquieu</a>, the 18th century French philosopher who inherited a large estate and fortune from one of his uncles, remarked that “natural law commands to fathers to feed their children, but does not oblige them to make them their heirs.”</p>
<p>Clearly, the author of the <em><a href="https://socialsciences.mcmaster.ca/econ/ugcm/3ll3/montesquieu/spiritoflaws.pdf">Spirit of the Law</a></em> (1748) squarely sided with the view that inheritance laws are appropriate for society to maintain an equilibrium.</p>
<h2>Reducing inequity</h2>
<p>Another French philosopher, <a href="https://www.iep.utm.edu/rousseau/">Jean-Jacques Rousseau</a>, went further in his egalitarian view. While inequality is unavoidable, he argued, placing limits on the inheritance of wealth is necessary for society. Rousseau believed legislators not only can, but also must, regulate the intergenerational transfer of wealth through laws in a manner that reduces social inequality in society.</p>
<p>During the tumultuous French Revolutionary period of 1789-1799, the <a href="https://books.google.ca/books?hl=en&lr=&id=gP1X2qbLffIC&oi=fnd&pg=PA1&dq=Mirabeau+Honor%C3%A9+Gabriel+Riqueti+.+1763.+La+philosophie+rurale+ou+%C3%A9conomie+g%C3%A9n%C3%A9rale+et+politique+de+l%27agriculture+r%C3%A9duite+%C3%A0+l%27ordre+immuable+des+loix+physiques+&ots=crRPIq1z7B&sig=Jx4Zsl6CILET6kJGdj2P4zNciZY&redir_esc=y#v=onepage&q&f=false">Count of Mirabeau</a> went even further, saying passing on wealth from one generation to another promotes “inequality in the ownership of domestic goods.” According to Mirabeau, property was to be limited to a lifetime and then reverted to the state upon a person’s death.</p>
<p>In the late 19th century, <a href="https://www.iep.utm.edu/durkheim/">Emile Durkheim</a>, considered one of the fathers of sociology, proposed the discontinuance of inheritance, which he considered an archaic and even immoral practice.</p>
<p>Durkheim believed the surplus from one generation to another should not revert to the state, but instead should be used to form social institutions (akin to today’s professional guilds) that would manage and redistribute the wealth. </p>
<h2>When ‘tax’ is a dirty word</h2>
<p>In the current socio-political atmosphere where “tax” is a dirty word that politicians avoid pronouncing as much as possible, it is unlikely we will see any significant legislative reforms to include an inheritance tax in Canada.</p>
<p>In the meantime, those of us who care about this problem still have a solution.</p>
<p>It is possible for each of us to privately dispose of our wealth by including charities as beneficiaries in our will — in the hope that such institutions will be able to contribute to correcting social inequalities in the future instead of reproducing them.</p><img src="https://counter.theconversation.com/content/102324/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Luc Theriault received funding from SSHRC, various universities and some fundations. He is affiliated with UNB, the Association for Nonprofit and Social Economy Research (ANSER), and the Journal for Co-operative Studies. </span></em></p>Canada is the only G7 country that doesn’t have an inheritance tax. A new report says that should change. The idea of sharing the wealth from one generation to another is not new.Luc Theriault, Professor of Sociology, University of New BrunswickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1003512018-07-25T20:05:22Z2018-07-25T20:05:22ZSurvey: Americans don’t like the government, but on average they want more of it<figure><img src="https://images.theconversation.com/files/228713/original/file-20180722-142438-1di3h20.jpg?ixlib=rb-1.1.0&rect=0%2C60%2C1130%2C837&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Headquarters of the US Department of Housing and Urban Development in Washington, DC. </span> <span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Robert_C._Weaver_Federal_Building#/media/File:Robert_C._Weaver_Federal_Building,_headquarters_of_HUD,_the_U.S._Department_of_Housing_and_Urban_Development,_Washington,_D.C_LCCN2011633627.tif"> Carol M. Highsmith/Library of Congress</a></span></figcaption></figure><p>A sizeable academic literature seeks to explain why the Americans have a smaller welfare state than similar Western countries, especially in Europe. One interesting observation this literature relies upon is that the US population believes in the meritocratic principles of the “American dream”. It is true that American opinions place more weight on hard work than luck, compared to Europeans, to explain people’s success in life, and that such beliefs make people less supportive of redistribution (<a href="https://scholar.harvard.edu/files/alesina/files/alesina_stantcheva_teso_mobility.pdf">Alesina, Stantcheva and Teso, 2017</a>). However, this does not necessarily mean that Americans really have the system they want.</p>
<p>In an April 2017 Internet survey of 1,037 individuals representative of the age and race composition of the adult population in the United States, we explored people’s opinions about government intervention and welfare policies.</p>
<p>Our survey shows that Americans, on average, want more from their government in areas of social policy, but they are highly polarised. In particular, a libertarian minority wants less government.</p>
<h2>Who promotes social justice? Not primarily the government</h2>
<p>A striking initial finding in this survey is that government is not high on the list of institutions that promote social justice, according to those surveyed. Political parties even appear at the <em>bottom</em> of the list. Families, friendship networks and private institutions appear at the top. In line with our <a href="https://theconversation.com/the-americans-critical-embrace-of-religion-100281">survey on religions</a>, the contribution of religious groups is highly ranked. It is surprising that two types of institutions that often devote themselves to social justice explicitly, NGOs and labour unions, appear in the second tier of the list, after the government. Social enterprises and cooperatives – a highlight of the last <a href="http://www.unrisd.org/UNRISD/website/projects.nsf/(httpProjects)/AC3E80757E7BD4E9C1257F310050863D?OpenDocument">UNRISD report</a> – are high on the list, which is interesting given that they are seldom in the news.</p>
<p>One should notice that, on the scale from 0 to 100, most of the items are below 50, which reveals the rather limited appreciation by the respondents of the work done by these institutions for social justice.</p>
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<img alt="" src="https://images.theconversation.com/files/228601/original/file-20180720-142420-jabymc.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/228601/original/file-20180720-142420-jabymc.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=420&fit=crop&dpr=1 600w, https://images.theconversation.com/files/228601/original/file-20180720-142420-jabymc.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=420&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/228601/original/file-20180720-142420-jabymc.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=420&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/228601/original/file-20180720-142420-jabymc.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=528&fit=crop&dpr=1 754w, https://images.theconversation.com/files/228601/original/file-20180720-142420-jabymc.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=528&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/228601/original/file-20180720-142420-jabymc.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=528&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="license">Author provided</span></span>
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<p>Among the survey sample, women and middle-aged respondents give lower scores to most items, whereas progressive or religious respondents give higher scores than average. The young have a more positive view than average about government and unions. The minorities have a more positive view than average about international organisations and unions.</p>
<h2>More government involvement, not less</h2>
<p>One could interpret such findings as support for the view that “government is not the solution to our problem, government <em>is</em> the problem,” as then-president Ronald Reagan <a href="https://www.youtube.com/watch?v=6ixNPplo-SU">famously said in 1981</a>. But this assumption would be wrong. In fact, for most items in a list of policy areas, respondents want <em>the same degree of involvement or more</em>, and this is particularly true for poverty relief, but also for income redistribution and elderly and child care, as well as education. There is only one item where less government involvement is wanted, the regulation of private behaviour (more on this below).</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/228602/original/file-20180720-142426-1qdceqy.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/228602/original/file-20180720-142426-1qdceqy.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=425&fit=crop&dpr=1 600w, https://images.theconversation.com/files/228602/original/file-20180720-142426-1qdceqy.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=425&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/228602/original/file-20180720-142426-1qdceqy.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=425&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/228602/original/file-20180720-142426-1qdceqy.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=534&fit=crop&dpr=1 754w, https://images.theconversation.com/files/228602/original/file-20180720-142426-1qdceqy.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=534&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/228602/original/file-20180720-142426-1qdceqy.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=534&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="license">Author provided</span></span>
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</figure>
<p>Redistribution of income and wealth is less supported by the middle-aged and the rich respondents, and more by the progressives and the moderately religious. Poverty relief is supported more by the progressives and the religious respondents. Public intervention in health care is supported more by the highly educated and less by the conservatives in the sample.</p>
<p>As far as the current situation is concerned, women and middle-aged respondents see less government intervention across the board, whereas religious respondents tend to see more of it. No systematic correlation with political opinions appears on the assessment of the current situation.</p>
<h2>On health, taxes and inheritance, liberal and libertarian ideas are popular</h2>
<p>It would be also be incorrect to conclude that Americans want more government intervention, period. On specific policy issues, one sees a surprising mix of ideas – including liberal and libertarian ones that flatly contradict one another – appearing jointly high on the lists.</p>
<p>In particular, free health care is strongly supported, which is in line with recent debates about “Medicare for all”. However, the idea that government should not intervene in health issues is not as unpopular as one could believe given the strong support for free health care, even if it comes at the bottom of the list.</p>
<p>More strikingly, there is a strong support for progressive taxation, but simultaneously a substantial level of support for the libertarian idea that there should be no redistribution. Among the possible path-breaking reforms that have been discussed for the redistribution system, the <a href="https://theconversation.com/survey-reveals-young-people-more-likely-to-support-universal-basic-income-but-its-not-a-left-right-thing-87554">universal basic income</a> (a basic grant given to everyone without condition) and the flat tax (a fixed tax rate on all levels of income) obtain less support than the idea of focusing taxation on consumption expenditures rather than income (i.e., exempting savings).</p>
<p>Finally, on inheritance taxation, one sees a strong support the elimination of inheritance tax (a libertarian idea) but also high support for the reform advocated by A. Atkinson in <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674504769"><em>Inequality: What Can Be Done?</em></a> and consisting in making the heirs pay as a function of what they receive over their lifetime rather than taxing the bequests left by the deceased.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/228603/original/file-20180720-142414-wngm43.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/228603/original/file-20180720-142414-wngm43.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=384&fit=crop&dpr=1 600w, https://images.theconversation.com/files/228603/original/file-20180720-142414-wngm43.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=384&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/228603/original/file-20180720-142414-wngm43.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=384&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/228603/original/file-20180720-142414-wngm43.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=483&fit=crop&dpr=1 754w, https://images.theconversation.com/files/228603/original/file-20180720-142414-wngm43.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=483&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/228603/original/file-20180720-142414-wngm43.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=483&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="license">Author provided</span></span>
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<p>Let us analyse how the sample is divided about these issues. As a general pattern, libertarian ideas are defended more by male, young, rich, not highly educated, conservative, and highly religious respondents, whereas liberal ideas are defended more by the opposite categories.</p>
<p>More complex coalitions arise for less obviously ideological or partisan issues. The universal basic income is supported more by young respondents and minorities jointly with low-income and progressive respondents. The Atkinson proposal about inheritance taxation is supported more by young, minority, rich, very progressive, and highly religious respondents. A progressive income tax is supported more by male, minority, progressive and highly religious respondents.</p>
<h2>Regulating private behaviour</h2>
<p>Let us finally come back to the issue of regulating private behaviour. Here again, one finds substantial support both for government intervention (safety information, repression of illegal drugs) and for opposite libertarian stances. The only statement below the 50 bar is that drugs should all be legalised, and there is strong disagreement among the sample on this question as well as on legalising prostitution.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/228604/original/file-20180720-142435-vd7yx1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/228604/original/file-20180720-142435-vd7yx1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=198&fit=crop&dpr=1 600w, https://images.theconversation.com/files/228604/original/file-20180720-142435-vd7yx1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=198&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/228604/original/file-20180720-142435-vd7yx1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=198&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/228604/original/file-20180720-142435-vd7yx1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=249&fit=crop&dpr=1 754w, https://images.theconversation.com/files/228604/original/file-20180720-142435-vd7yx1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=249&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/228604/original/file-20180720-142435-vd7yx1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=249&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="license">Author provided</span></span>
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<p>Support for libertarian ideas here comes from different coalitions than for social policies. Legalising drugs and prostitution is supported more by young, male, progressives and opposed more than average by the highly religious respondents. Putting government out of private behaviour completely is supported more than average by young, male, minority respondents, and less by progressives, while religiosity is not correlated with responses.</p>
<p>Support for government intervention against alcohol as a drug gathers male, progressive and highly religious respondents, whereas the punishment of behaviour under influence is supported more by rich and highly religious respondents. The punishment of consumers of prostitution gathers elderly respondents with minority, progressive and religious respondents, and is supported less than average by middle-age respondents (no significant gender difference appears).</p>
<hr>
<p><em>Pariroo Rattan has contributed to analysing the data.</em></p><img src="https://counter.theconversation.com/content/100351/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marc Fleurbaey and IPSP received funding from IFFS for this survey series. </span></em></p>An April 2017 survey explored Americans’ opinions about government intervention and welfare policies. It found that on average, they want more from their government, but are highly polarised.Marc Fleurbaey, Professor in Economics and Humanistic Studies, Princeton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/675522016-10-25T19:11:19Z2016-10-25T19:11:19ZPiketty challenges us to consider if we need to rein in wealth inequality<p>French economist Thomas Piketty, currently <a href="http://www.monash.edu/news/thomas-piketty-at-melbourne-town-hall">in Australia</a>, is known for his focus in on the inequality of wealth. His book on the topic has sold two and a half million copies worldwide, which is quite amazing for a book full of economic statistics and graphs.</p>
<p>Piketty concludes, optimistically, by saying that we don’t have to accept the inevitability of wealth inequality. If there were the political will we could, as a society, reduce inequality. This includes his argument for an <a href="http://www.abc.net.au/news/2016-10-24/celebrated-economist-suggests-inheritance-tax/7961270">inheritance tax</a>. </p>
<p>Piketty spends less time explaining why excessive wealth inequality matters. This requires more attention because we cannot presume that there is sufficiently widespread public knowledge about the importance of the issue.</p>
<p>Some people evidently <a href="http://www.afr.com/opinion/editorials/thomas-piketty-can-spare-us-the-lecture-australia-a-land-of-opportunity-20161024-gs97cn#">think wealth inequality is a good thing</a>, because they believe it creates stronger economic incentives. It is that sort of reasoning that leads them to favour the Turnbull government’s proposed cuts to company tax rates, even though it would create yet more economic inequalities.</p>
<p>Meanwhile the International Monetary Fund has <a href="http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf">published research</a> showing that more equality is also conducive to superior macroeconomic performance. Coming from such a usually conservative source, that should shake the belief that inequality is good for the economy.</p>
<p>There is also lots of other social science research showing the social problems that result from widening inequality. This includes the important research work reported by Wilkinson and Pickett in their book <a href="https://www.theguardian.com/books/2009/mar/13/the-spirit-level">The Spirit Level</a>, which explains “why more equal societies almost always do better”. It shows that more equal societies are generally happier and have a lower incidence of social problems, such as physical and mental illness, obesity, crime and violence and low levels of educational attainment. Other studies show that more equality is conducive to more sustainable and peaceful social arrangements. </p>
<p>More equal societies have healthier democracies too, as US economist <a href="https://www.amazon.co.uk/Price-Inequality-Joseph-Stiglitz/dp/0718197380">Joseph Stiglitz has argued</a>, because there is less tendency for wealthy elites to corrupt political institutions.</p>
<h2>Why Australia should care</h2>
<p>These concerns are currently of great significance for Australia. And we now have the data necessary to understand the dimensions of the challenge. </p>
<p>A <a href="http://evatt.org.au/papers/wealth-nation.html">new Australian report on wealth inequality</a> by the Evatt Foundation, drawing on the best data available, shows Australia is not the egalitarian nation that many people think it is. Rather, in terms of wealth inequalities, we’re mid-ranking on the international league table. And we’re becoming more unequal.</p>
<p>Currently, the wealthiest 10% of Australian households have approximately half of the total private wealth in the country. The top 1% of households alone have 15% of the total wealth.</p>
<p>At the other end of the spectrum, 40% of households have effectively no wealth. Most of them have modest current incomes, whether from wages or welfare, and they spend it all (and sometimes more, going into debt). Nothing is accumulated over time. Struggling to pay for housing is a big factor keeping them out of the wealth accumulation process enjoyed by those who have more substantial wealth.</p>
<p>Two wealth gaps are widening. One is between the top 10% of Australian households and the next 40% of “middle Australia”. The other is between those two groups and the bottom 40% who are effectively “out of the loop,” as far as sharing in economic prosperity.</p>
<p>These are the hallmarks of an unequal society, not an egalitarian society, as my colleague Chris Sheil and I <a href="https://theconversation.com/land-of-the-fair-go-no-more-wealth-in-australia-is-becoming-more-unequal-63327">have argued previously</a>. </p>
<p>I’ve also <a href="https://theconversation.com/why-we-should-put-an-inheritance-tax-back-into-the-spotlight-1634">put the case for inheritance taxation</a> as one of the policy measures that could be considered if we’re serious about reining in inequalities. Piketty’s presence here in Australia makes it timely to reconsider these issues and kickstart some policy action.</p>
<p>Slowing down the intergenerational transmission of inequality would be a good start to reversing the growing inequalities with which Piketty and the new Evatt Foundation report are concerned. That means having an inheritance tax.</p>
<p>Most other developed countries have taxes on inherited wealth. Australia used to have inheritance taxation too, until Queensland Premier Joh Bjelke-Petersen initiated the collapse of those arrangements in the late 1970s.</p>
<p>The case for an inheritance tax is well established. The last major review of the Australian tax system, chaired by former Treasury head Ken Henry, <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_2/chapter_a3.htm">supported it in principle.</a></p>
<p>The exact form of the tax needs careful consideration. Should it be on the estate itself, or on the windfall incomes that it provides for the participants? What minimum wealth threshold should be set? And, above that threshold, what rate or rates of taxation should apply? Other countries vary in their treatment of these issues, so it is important that we develop a system that is appropriate for local circumstances.</p>
<p>Of course, any such tax would be opposed by the wealthy elite. You wouldn’t expect otherwise. But if the tax threshold were set at, say A$2 million, only a tiny proportion of households would be affected. And the rest of us would benefit directly from the extra revenues, which might then be used to pay for universal free tertiary education, for example, or a major increase in public housing. </p>
<p>We would also benefit indirectly from living in a more cohesive society with less of those problems that the social science researchers have shown to be correlated with extreme inequalities.</p><img src="https://counter.theconversation.com/content/67552/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Frank Stilwell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some people evidently think wealth inequality is a good thing, but there’s plenty of evidence to show the problems it causes.Frank Stilwell, Emeritus Professor, Department of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/466402015-10-01T05:34:15Z2015-10-01T05:34:15ZFamily hut sharing: how Norway avoids cabin fever<figure><img src="https://images.theconversation.com/files/95377/original/image-20150918-10332-h36xvf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-209533915/stock-photo-wooden-fishing-cabin-in-norway.html?src=S2u7uAX4MdSvERHg6k8n9w-1-10">www.shutterstock.com</a></span></figcaption></figure><p>Mountain cabins and seaside houses are part of the Scandinavian dream. Europeans are right to envy their Nordic compatriots, who can gather with family and friends at a simple house for hiking, skiing, mushrooming, or just relaxing in front of a magnificent landscape.</p>
<p>About <a href="http://www.forskningsradet.no/prognett-demosreg/Nyheter/Norwegians_spending_more_time_at_cabins/1253976782340">half</a> of all Norwegians have access to a summer house of some kind. The first boom in cabin ownership was in the 1960s, when intrepid Norwegians hiked into the mountains to build themselves a little hideaway. Another boom in the 2000s saw increasingly sophisticated summer houses coming onto the market in many upland <a href="http://www.academia.edu/2943694/The_Infrastructure_of_Nature_Leisure_Cabins_and_the_Built_Environment_in_Norway_1850-2000">areas</a>.</p>
<p>At this time of year, many Norwegians have already closed up their summer cabins and are back at work, perhaps already looking forward to autumn half-term holidays at the end of September.</p>
<p>For some of them though, the future of their cabin might be a little less straightforward than organising a shared calendar. As the first generation of owners leave cabins to their descendants, they often face difficult decisions. </p>
<h2>Obscure agreements</h2>
<p>The main principle of Norwegian <a href="http://www.norjus.no/visartikkel.asp?art=254%20">inheritance law</a> is “partible inheritance”. This means that at least two thirds of a couple’s goods are expected to be divided equally between their children. </p>
<p>When it comes to a family home, inheritors who are already homeowners most commonly sell the house and share the proceeds, but the same does not necessarily apply to a cabin. Cabins are much more likely to stay in the family and be shared in different ways. </p>
<p>One way that cabins can be shared is to split the ownership equally between siblings. This appears straightforward in principle, but if this happens over two or three generations, there may be so many owners that it becomes impossible to manage. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/95387/original/image-20150918-19419-zs4wx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/95387/original/image-20150918-19419-zs4wx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/95387/original/image-20150918-19419-zs4wx9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/95387/original/image-20150918-19419-zs4wx9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/95387/original/image-20150918-19419-zs4wx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/95387/original/image-20150918-19419-zs4wx9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/95387/original/image-20150918-19419-zs4wx9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An investment: cabins can be worth millions.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-210398371/stock-photo-norway-image-of-fishing-village-in-lofoten-islands-area-in-norway.html?src=csl_recent_image-1">www.shutterstock.com</a></span>
</figcaption>
</figure>
<p>As shares in the cabin move through the different branches of the family, and are split between various siblings, people can end up with 3/72 or 18/60 of a cabin, making ownership complex. </p>
<p>A popular option is to give ownership of the cabin to one child (or inheritor) and grant user rights to the others. To avoid disputes, many people add a clause to their will so that the owning inheritor cannot sell the cabin without giving the others the option of buying it first.</p>
<p>However, things can get even more complicated. Until the Norwegian government recently <a href="http://www.rime.no/en/the-norwegian-government-abolishes-the-inheritance-tax/">abolished inheritance tax</a>, many couples would arrange to sell their cabins to their offspring in advance, still retaining usage rights themselves for up to four weeks a year. </p>
<p>There were good tax reasons to do this, which have now disappeared, but there are still good moral reasons behind the practice. </p>
<p>Parents who want to ensure their children remain on good terms with each other once they are gone, might settle their inheritance well before they are likely to die. This way, if the children are unhappy with the settlement, they can be unhappy with their parents, rather than with each other.</p>
<p>Despite attempts to keep the peace, things do go awry. Summer houses on the coast have become particularly valuable properties, because of the restricted areas where they <a href="http://www.environment.no/Topics/Marine-areas/Coastal-waters/">may be built</a> (despite the long coast, there are limits to coastal building). </p>
<p>Inheritance tax often priced inheritors out of taking on a cabin that may have been built 40 years ago for next to nothing, but is now a multi-million pound property. That problem has now disappeared. </p>
<p>However, issues still exist and there are good reasons why Norwegians often talk about stress and sadness in relation to cabins. “Everyone has a cabin story,” I am often told. </p>
<p>For example, say three siblings inherit a cabin equally and one wants out of the share, that then leaves the other two with a major bill to buy he or she out. This can often cause tension within the whole family.</p>
<h2>Worldwide lessons</h2>
<p>There are many “<a href="http://www.oxforddictionaries.com/definition/english/blended-family">blended</a>” families in Norway due to exceptionally high divorce and remarriage <a href="http://www.ssb.no/en/ekteskap/">rates</a>. However, this doesn’t necessarily make things more complicated, as inheritance can go to direct heirs rather than step-children. </p>
<p>When marrying, couples can retain property in their personal ownership, not necessarily bringing everything into joint ownership with their new spouse. </p>
<p>For example, if “Britta” owns a cabin that her parents built, she does not have to leave it to her new husband’s children from his previous marriage.</p>
<p>These days, so many families have cabins that there may be several to pass on. Each child might get a different one, and any significant difference in value might be compensated through a cash settlement. </p>
<p>By default however, this can also reinforce the difference between “legal” siblings (including birth and adopted siblings) and step-siblings, often quite subconsciously.</p>
<p>Sharing a cabin doesn’t only bring a family together in the holidays, but it can also define what relations the different family members have with each other. </p>
<p>Perhaps surprisingly then, given the heightened emotions associated with a family cabin, startlingly few inheritance disputes end up in court. </p>
<p>The abolition of inheritance tax has been seen as a potential threat to the “<a href="http://www.studyinnorway.no/Living-in-Norway/Norwegian-society">Equal Society</a>” that the Norwegian welfare state has produced. But whether these changes will have an effect on the method of shared ownership and use of holiday cabins, remains to be seen. </p>
<p>It is quite likely that Norwegian families will continue to create equality – at least within the family – through sharing-arrangements at cabins. Whether equality can survive beyond the family is a different question.</p><img src="https://counter.theconversation.com/content/46640/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simone Abram has received funding from Leeds Beckett University where she holds a Readership. </span></em></p>The abolition of inheritance tax in Norway is having repercussions on their cabin culture.Simone Abram, Reader in the Dept of Anthropology, Durham UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/442712015-07-06T13:18:17Z2015-07-06T13:18:17ZBudget 2015: tax promises leave little room to drive a viable economic plan<figure><img src="https://images.theconversation.com/files/87464/original/image-20150706-16778-1a8iq5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tough as old boots. Osborne prepares a hard budget for some.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/59937401@N07/5856708903/in/photolist-9VxavH-biaPun-rnjfcL-FEBNn-CDhDJ-iTXYep-bxDenq-9Vx7u4-7fP5dL-biaBRX-9jeqKN-bDdcmL-axoSjw-biaCV6-biaYZP-gv5RSC-9VwGaa-ECwHx-wysZd-9xSJ1E-77Un37-bSr87x-iqbHS2-7TXaQY-7Ff4Av-9mu7MM-7DqTEi-mMfmxi-9p7dNM-5xGtc3-biaWZ4-5vNnwp-eebxNq-rqzjFb-jcktAs-biaMc2-9VwzJV-dM3ZSU-axuhRV-mnnL7y-ee5RgX-bPLRLH-9VxbfZ-9afN2b-a1w2xS-biaDRz-m7rSri-bDw2PE-cxtNp-biaH2x">Images Money</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The new Conservative government is set to unveil its first post-election budget. In fact, it will be the first by a Conservative government since 1997.</p>
<p>What is the chancellor likely to do? During the election campaign, the government promised that it would not raise income tax rates, national insurance contributions or the VAT sales. So it is safe to assume that there will be no hikes?</p>
<p>A number of changes are expected to meet the election pledges. These include raising the annual income tax personal allowances from the present amount of £10,600 to £12,500 by 2020. This means that the first £12,500 of all earnings will be exempt from income tax. In addition, the government promised to increase the threshold for the 40% marginal rate of income tax from £42,385 to £50,000 by 2020. </p>
<h2>Shades of grey</h2>
<p>Other pre-election promises included changes to inheritance tax. Currently, the estate of a deceased individual can be liable to inheritance tax of 40% on assets above £325,000. The estate of a couple may enjoy an exemption of £650,000. The government hinted at raising this threshold to £1m. The Conservatives appealed to the grey vote by promising to increase the state pension by £1,000 over the next five years. By 2020, the state pension of a single person is likely to be around £7,000 a year.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/87466/original/image-20150706-16791-11m46ea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/87466/original/image-20150706-16791-11m46ea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/87466/original/image-20150706-16791-11m46ea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/87466/original/image-20150706-16791-11m46ea.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/87466/original/image-20150706-16791-11m46ea.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/87466/original/image-20150706-16791-11m46ea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/87466/original/image-20150706-16791-11m46ea.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/87466/original/image-20150706-16791-11m46ea.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Soaking up the attention. Pensioners and politicians.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/waltjabsco/7693835034/in/photolist-cHSV7b-jVbGr3-gRW8cM-5J8PpC-bLAvKz-3f8iZ5-7V3AeH-3xNjij-57XTi3-96UK46-5J4xCB-amcrUp-2DttXP-5apV3e-7WctPK-7XhRko-avyHAb-ptGnbJ-9His3B-auXiKF-veLB4t-2ju6R6-bYvEQW-d72Pc1-fay8mf-6dSCN3-dcqrjL-r4sGVL-52bMk5-4wP2jP-cwnqFQ-ndow25-8bfSy7-75TvQV-8CdvUy-bYvFCu-2CTEzD-9uS7gr-6TPAcD-aCa5Q2-6Sophs-bYvYEU-egVuMt-d72Jys-6EZQuD-cxhECb-s7n9WP-9WKmpa-71gmmM-sWX3iD">Walt Jabsco</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>The above and other promises are likely to be paid by restrictions on the tax relief on pension contributions enjoyed by the wealthy. These are likely to affect individuals earning more than £150,000 a year. The rich could be appeased by promises to cut the 45% rate of income tax, which currently applies to taxable incomes above £150,000, although <a href="http://www.theguardian.com/politics/2015/jul/05/george-osborne-cut-benefits-cap-20000-year-outside-london">this is now looking less likely</a>.</p>
<h2>Debt dependent</h2>
<p>During the election campaign, the government said that is would raise £5 billion from a clampdown on tax avoidance, but previous initiatives have <a href="http://www.theweek.co.uk/business/55254/osbornes-swiss-tax-raid-revealed-2bn-flop">failed to deliver</a> the promised revenues. The government may well yield to the <a href="https://theconversation.com/instead-of-laying-off-thousands-of-staff-hsbc-should-focus-on-becoming-a-model-bank-43024">banking lobby</a>’s demands for an end to the bank levy, which is expected to raise around £3.6 billion a year.</p>
<p>The biggest changes are likely to be cuts to the welfare budget as the government is committed to reducing the <a href="http://www.ons.gov.uk/ons/dcp171778_407371.pdf">public debt</a> from £1.6 trillion. Despite persistent <a href="http://www.theguardian.com/society/2015/jun/25/number-of-uk-children-living-in-poverty-unchanged-latest-figures-show">child poverty</a>, the government is looking to cut about £12-13 billion from the welfare budget. Over a period, the scale of cuts is likely to be more severe as the government is committed to generating <a href="https://www.gov.uk/government/speeches/mansion-house-2015-speech-by-the-chancellor-of-the-exchequer">budget surpluses</a>.</p>
<h2>Foundations</h2>
<p>What should the government do to build a sustainable economy? The post banking crash economic recovery is still weak and the government is relying on economic growth to generate tax revenues to meet its goals. Economic growth depends on people having sufficient purchasing power. <a href="http://www.ons.gov.uk/ons/dcp171778_398239.pdf">The share of GDP represented by UK workers’ wages</a> has shrunk to about 50.5%, the lowest ever recorded. </p>
<p>The <a href="http://www.independent.co.uk/news/uk/politics/the-poor-are-paying-a-bigger-proportion-of-tax-than-the-rich-and-the-gap-is-widening-10353954.html">poorest fifth</a> of households pay 37.8% of their income in direct and indirect taxes compared to 34.8% for the richest fifth, but the government will not reduce the rate of VAT, which hits the poorest the hardest. </p>
<p>The government is unlikely to boost the purchasing power of the poorest by forcing employers to pay a <a href="http://www.livingwage.org.uk/">living wage</a>. The Living Wage campaign has gained some influence with its calculation of the hourly rate which allows employees to meet a standard cost of living. It sits at about £9.15 an hour in London and £7.85 an hour in the rest of the UK. This compares to a national <a href="https://www.gov.uk/government/news/new-national-minimum-wage-rates-announced">minimum wage</a> of £6.70 per hour.</p>
<p>The government is also unlikely to borrow money to finance new green and high technology industries to create well-paid skilled jobs.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/87461/original/image-20150706-16763-s8ueqm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/87461/original/image-20150706-16763-s8ueqm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/87461/original/image-20150706-16763-s8ueqm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/87461/original/image-20150706-16763-s8ueqm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/87461/original/image-20150706-16763-s8ueqm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/87461/original/image-20150706-16763-s8ueqm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/87461/original/image-20150706-16763-s8ueqm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/87461/original/image-20150706-16763-s8ueqm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Lend and spend.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/chrisgold/7264856856/in/photolist-c4YhQG-bteKdy-gHyHse-bG9A4M-gpRpSi-bDRPuS-6Vyq6R-cvH5cd-72Y4Ky-ouW9mQ-5B7oca-72RDVM-rL6hdh-8f9YWy-bq1Dm5-btrcvC-68Lt6t-btrda9-7yk4v9-9yVQDC-ouXL78-61VwXH-61VvM2-6Xqy3L-6GC1eE-FzLB3-FzLpU-eTX1om-5tDE18-5BDEDc-6yVJz2-9tUHa8-dTPqeM-6WDr1G-6ENSiw-9p3EzS-9oZAKv-9p3Emh-9yVQkq-cvH5QA-5tDLCR-g8AaPy-eaF86S-bG9Av6-owHAKg-ouW97G-jtZWZ4-gokfXF-8gN2Lo-nkzF4S">Chris Goldberg</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>So how is government seeking to aid economic recovery? It is encouraging citizens to borrow and spend. Artificially low interest rates – although not directly a function of government policy – are encouraging citizens to borrow and consume more. UK <a href="http://themoneycharity.org.uk/money-statistics/">household debt</a> is about £1.4 trillion and expected to rise to £2.3 trillion by 2019. </p>
<p>Additional consumption is also being encouraged by the recent pension reforms which enable some retirees to cash in their pension pots. Around <a href="http://www.telegraph.co.uk/finance/personalfinance/pensions/11699914/pension-freedoms-to-yield-1.2bn-tax-windfall-for-treasury.html">£6 billion</a> is expected to be withdrawn by retirees to spend as they please. This will also boost the government’s tax revenues by about £1.2 billion. Of course, there are questions about how household debt is to be repaid and what will happen to pensioners later in the lives when a large lump of their savings has been lavished on holidays, cars and luxuries. Perhaps the government can’t see beyond the next election.</p>
<p>The UK desperately needs a new economic strategy, but Wednesday’s budget is unlikely to announce one.</p><img src="https://counter.theconversation.com/content/44271/count.gif" alt="The Conversation" width="1" height="1" />
<h4 class="border">Disclosure</h4><p class="fine-print"><em><span>Prem Sikka is director of the Association for Accountancy & Business Affairs (AABA), a not-for-profit organization registered in the UK.</span></em></p>Commitments made at election time have a habit of tying the Chancellor’s hands come budget day.Prem Sikka, Professor of Accounting, Essex Business School, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/406722015-04-27T05:14:45Z2015-04-27T05:14:45ZManifesto Check: Tory tax policies are out of focus<p>Over the past five years of coalition government, most major economic policies have been driven by the Conservatives. Only a few changes – such as increasing the point at which income tax is paid – have come from the Liberal Democrats. So, when it comes to setting out plans for the next five years, the Conservatives are best placed to know the true state of the nation’s finances. </p>
<p>With <a href="https://s3-eu-west-1.amazonaws.com/manifesto2015/ConservativeManifesto2015.pdf">this manifesto</a>, the party could have set out a clear, honest, economic roadmap. It is disappointing that it hasn’t done so. This is probably because many voters would not like the answers, but it leaves the party’s key economic polices looking random, and lacking a coherent strategy.</p>
<p>Ultimately, any government has budget constraints. Therefore, what is spent in one area of government, results in budgetary cuts in another, or in higher taxes. The Conservatives say that they will be able to raise money via a clampdown on tax avoidance and efficiency gains across departments. Sadly, both of these holy grails of government are almost impossible to achieve, and <a href="http://www.theguardian.com/business/2014/mar/20/ifs-budget-2014-promises-uncertain-savings-forecasts">never generate</a> the the revenues governments think they will. </p>
<p>Some of the party’s key policies, such as <a href="http://www.bbc.co.uk/news/uk-england-31942291">the Northern Powerhouse</a>, or investing £100 billion in UK infrastructure, are sensible. There is a real need to balance the economy away from London and the South East, and to upgrade much of the Victorian infrastructure that the UK still runs on. </p>
<p>But how this is paid for, given that pensioners have been protected with <a href="http://www.bbc.co.uk/news/uk-25609485">the triple-lock</a>, the 40p rate of income tax will not kick in until someone is earning over £50,000, and income tax, VAT, and National Insurance are to be fixed at their current levels, remains to be seen.</p>
<h2>Fractured fundamentals</h2>
<p>One major issue that has occurred over this parliament, and looks set to continue over the next, is the fracturing of some of the fundamentals of tax policy. In tax, the idea is to capture flows of revenue. But an increasing number of flows are being removed from tax, and this is particularly true of wealth.</p>
<p>For instance, one of The Conservatives’ key proposals is to increase <a href="https://www.gov.uk/inheritance-tax/leaving-assets-spouse-civil-partner">the inheritance tax threshold</a> to £1 million. But this is a policy which benefits only a handful of people. The average UK house price is £286,000; as a result, with the current combined threshold sitting at £650,000, the vast majority of people will clearly not pay inheritance tax on their estates. However, the government has also set pension pots outside of inheritance as well. As a result, there are going to be some very large inter-generational wealth flows for a very select few that are simply missed, which lowers tax revenues.</p>
<h2>EU uncertainty</h2>
<p>One final issue that has dogged the Conservative party for decades is that of Europe. The fact that an “in/out” referendum is going to <a href="http://www.telegraph.co.uk/news/newstopics/eureferendum/11324069/David-Cameron-a-Conservative-government-could-hold-EU-referendum-before-2017.html">be on the table</a> is a major economic issue. The relative costs and benefits of EU membership are hugely complex. But the promise of a referendum adds a level of uncertainty to the UK economy, which it can ill afford. The UK economy has some “<a href="http://www.telegraph.co.uk/finance/festival-of-business/10599024/The-green-shoots-of-recovery-need-their-place-in-the-sun.html">green shoots</a>” but many do not feel better off, even if <a href="http://www.bbc.co.uk/news/business-31480352">the data suggests they are</a>. </p>
<p>Given the need for deficit reduction, the huge debt overhang that exists in the private sector, the need for increasing wages, and to ensure people feel better off; increasing uncertainty is not good for business and growth.</p>
<p>All manifestos are written to get political parties elected. But the extent to which this motivation pervades the Conservative’s manifesto is concerning. So, while many of the “benefits” of a Conservative government have been clearly set out, the costs and the implications for taxation, the exchequer, and the size of the state <a href="http://election2015.ifs.org.uk/article/post-election-austerity-parties-plans-compared">have not</a>.</p>
<p><em>The Conversation’s <a href="https://theconversation.com/uk/manifesto-check-2015">Manifesto Check</a> deploys academic expertise to scrutinise the parties’ plans.</em></p><img src="https://counter.theconversation.com/content/40672/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iain Clacher does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations. The Conversation's Manifesto Checks are produced in partnership with Nesta and the Alliance for Useful Evidence. </span></em></p>The Conservatives have missed their chance to map out a coherent tax strategy.Iain Clacher, Associate Professor in Accounting and Finance, University of LeedsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/373942015-03-02T11:07:50Z2015-03-02T11:07:50ZRunning the numbers on the impending sale of Marina Picasso’s ‘inheritance without love’<p>Earlier this year, an anonymous “friend” of Marina Picasso – the granddaughter of artist Pablo Picasso – revealed to the <a href="http://pagesix.com/2015/01/04/pablo-picassos-granddaugher-selling-over-290m-of-his-art/">New York Post</a> that the heiress was looking to put up a number of her grandfather’s works up for sale. This was confirmed by Ms. Picasso, who seeks to raise funds to increase her philanthropic work. </p>
<p>“It’s better for me to sell my works and preserve the money, to redistribute to humanitarian causes,” she told <a href="http://www.nytimes.com/2015/02/05/arts/design/picassos-granddaughter-plans-to-sell-art-worrying-the-market.html">The New York Times</a> in February. “It is an inheritance without love,” she later revealed. </p>
<p>She said she hadn’t decided how many she was planning to sell, although she’s reportedly accepting offers privately for seven of her grandfather’s works, worth an estimated $307.4 million. </p>
<p>So why are some in the art world so concerned? Why is Marina Picasso selling the artworks now? And how did these works come into her possession in the first place?</p>
<h2>A fractured family</h2>
<p>As Alan Riding <a href="http://www.nytimes.com/1999/04/19/arts/family-feud-over-picasso-wheels-new-car-s-logo-divides-heirs-lucrative-name.html">wrote</a> in a 1999 New York Times article about Picasso’s relatives, “children of the rich, famous and powerful rarely have it easy.” But Picasso’s descendants have suffered more than most. </p>
<p>Pablo Picasso’s first marriage took place in 1918 to Olga Khokhlova, a dancer with the Ballet Russe. Although they lived separately, they would remain married until her death in 1955. Their son, Paulo (1921) – whom Picasso routinely ill-treated – was the artist’s only legitimate child. </p>
<p>Paulo had three children of his own: Marina (1951) and Pablito (1954) from his first wife, and Bernard (1959) from his second. In 1971, Paulo died from cirrhosis of the liver.</p>
<p>Pablo Picasso passed away in 1973. The same year, his grandson Pablito (Marina’s brother) died in a hospital after swallowing bleach. Four years later, his former mistress Marie-Thérèse Walter hanged herself, and his second wife, Jacqueline Roque, shot herself in 1986. </p>
<p>Picasso left no written will, and the heirs entered into a bitter dispute over the estate. Valued then at $260 million, it included more than 35,000 paintings, drawings, prints, sculptures and ceramics, in addition to real estate and several homes. </p>
<p>Maurice Rheims, an expert appraiser, spent five years determining their status and cataloging the 1,885 paintings, 7,089 drawings, 3,222 ceramic works, 17,411 prints and 1,723 plates, 1,228 sculptures, 6,121 lithographs, 453 lithographic stones, 11 tapestries and eight rugs.</p>
<h2>Divvying it up</h2>
<p>Soon after Picasso’s death, the French government amended France’s inheritance tax law to allow Picasso’s heirs to pay the taxes owed by his estate in art instead of money. Ultimately, the French state took 3,800 works, which formed the core of the <a href="http://www.museepicassoparis.fr/en/">Musée Picasso</a>. The rest was left for the family to divide. </p>
<p>Although conflicting reports of the distribution have been made, the widow’s share amounted to roughly three-tenths of the art, or $52 million in 1977, after taxes; the three illegitimate children, Maya, Claude and Paloma, were awarded one-tenth, or $18 million worth of art; meanwhile, Marina and Bernard each received one-fifth of the the art, slices valued at $35 million. Additionally, Bernard received the chateau at Boisgeloup in Normandy, while Marina inherited the sumptuous <a href="https://picasso.shsu.edu/index.php?view=BioPhotoZoom&type=location&img=californie-003">La Californie</a>.</p>
<p>Marina’s share, like Bernard’s, is more representative of Picasso’s career than that of any other heir; the two of them have more early works because of the community property Picasso shared with Olga Khokhlova, their grandmother. When they separated in 1935, Olga had had her lawyer request an inventory of her husband’s property at the time. </p>
<p>The <a href="http://picasso.shsu.edu">Online Picasso Project</a>, which I direct, currently includes 25,159 items, of which 19,332 are unique artworks (i.e., excluding lithographs, engravings, ceramics and photographs). Of these, 598 artworks are still listed as being part of the Marina Picasso Collection (85 paintings, 490 works on paper and 18 sculptures); and 326 artworks (62 paintings, 264 works on paper and 12 sculptures) are known to have formerly been in her collection. Assuming that the Online Picasso Project has a representative sample of the Marina Picasso collection, this seems to indicate that she has already sold about 35% of her collection.</p>
<p>Marina seems to have little sentimental attachment to her grandfather’s work. “I respect my grandfather and his stature as an artist,” <a href="http://www.nytimes.com/2015/02/05/arts/design/picassos-granddaughter-plans-to-sell-art-worrying-the-market.html">she said last month</a>. “I was his grandchild and his heir. But never the grandchild of his heart.”</p>
<h2>A force in the arts market</h2>
<p>One of the major issues to resolve upon Picasso’s death was the marketing of his works. “Picasso almost has to be treated as if he were a living artist,” a dealer told <a href="https://picasso.shsu.edu/index.php?view=ArchiveArticle&year=1980&id=36">The New York Times</a> in 1980. “There is so much stuff that it has to be marketed very carefully over a long period of time. If too much were offered at once, it could cause prices to fall sharply.”</p>
<p>Over the ensuing years, Marina Picasso’s representative, a Geneva-based art dealer named Jan Krugier, staged exhibitions of the Marina Picasso collection and organized two international tours. </p>
<p>In 2006, Krugier exhibited seven paintings, two sculptures and several drawings. </p>
<p>“Prices have gone crazy,” he explained to <a href="https://picasso.shsu.edu/index.php?view=ArchiveArticle&year=2006&page=23&id=3657">The Art Newspaper</a> at the time. “I don’t understand it anymore. Because of this, there are masses [of Picassos] coming out at the moment.” Another art dealer, Nick Maclean, was reported in the same article as saying, “It seems there is no satisfying the appetite in today’s market for Picasso’s work.” </p>
<p>This interest has only grown. Over the last nine years, more money has been spent on Picasso than on any other artist. In 2014, according to the New York-based art market database <a href="http://www.artnet.com/">Artnet</a>, auction sales of Picasso’s were second only to Andy Warhol – $449 million last year in a $16 billion international market. Every year, over 1,500 Picasso’s change hands at auctions. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/73216/original/image-20150226-1814-nmpcrw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/73216/original/image-20150226-1814-nmpcrw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=780&fit=crop&dpr=1 600w, https://images.theconversation.com/files/73216/original/image-20150226-1814-nmpcrw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=780&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/73216/original/image-20150226-1814-nmpcrw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=780&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/73216/original/image-20150226-1814-nmpcrw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=980&fit=crop&dpr=1 754w, https://images.theconversation.com/files/73216/original/image-20150226-1814-nmpcrw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=980&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/73216/original/image-20150226-1814-nmpcrw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=980&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Last year, Marina Picasso sold Bouquet (1969) for between $2.5 million and $3.5 million.</span>
<span class="attribution"><a class="source" href="http://www.icollector.com/Pablo-Picasso-Le-Bouquet-Lithograph_i11981184">icollector.com</a></span>
</figcaption>
</figure>
<p>Due to the secrecy of the art market, it’s difficult to determine exactly which artworks still remain with Marina Picasso. However in 2014, the following works of hers were auctioned: Verres et bouteilles (1914), Collage avec feuille, ficelle et tulle (Guitare) (1926), Composition avec femme aux cheveux mi-longs (1930), Portrait de Marie-Thérèse (1932), Femme à la collerette (1941), Femme allongée (1946) and Bouquet (1969).</p>
<p>Together, they’ve netted her between $10.6 million and $15 million – and that’s just from last year. </p>
<h2>Will prices plummet?</h2>
<p>While other Picasso heirs have occasionally sold works, Marina is the only one who seems to be increasing the number of her grandfather’s works for sale.</p>
<p>It’s not all for personal gain: Ms. Picasso has used the proceeds from her sales and exhibitions for a number of philanthropic endeavors, ranging from the establishing orphanages and offering agriculture subsidies in Vietnam, to funding mental health care causes in Europe. </p>
<p>“For once, I’m doing something with my grandfather, even if he is no longer with us,” she was quoted saying in <a href="http://www.independent.co.uk/arts-entertainment/art/features/why-is-picassos-granddaughter-selling-off-paintings-of-his-worth-200m-9961401.html">The Independent</a> last year. “This sale is a way of making him take part in my life’s work.” </p>
<p>The figures attached to the paintings supposedly hitting the market in 2015 are even more exorbitant than 2014’s. </p>
<p>One work that Ms. Picasso will sell in the upcoming batch is the painting La famille (1935), a rare, realistically styled painting that is unusual for Picasso. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/73212/original/image-20150226-1765-gbe8yj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/73212/original/image-20150226-1765-gbe8yj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=485&fit=crop&dpr=1 600w, https://images.theconversation.com/files/73212/original/image-20150226-1765-gbe8yj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=485&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/73212/original/image-20150226-1765-gbe8yj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=485&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/73212/original/image-20150226-1765-gbe8yj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=610&fit=crop&dpr=1 754w, https://images.theconversation.com/files/73212/original/image-20150226-1765-gbe8yj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=610&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/73212/original/image-20150226-1765-gbe8yj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=610&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A black and white reproduction of La famille (1935) – one of the works purported to be up for sale in the coming year.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Other works purported for sale are Portrait de femme (Olga) (1923), valued at $60 million, Maternité (1921) at $54 million and Femme à la mandoline (Mademoiselle Leonieassise) (1911) at $60 million.</p>
<p>Yet the announcement has art investors, auctioneers and dealers worried. In an interesting twist, Ms. Picasso revealed in an interview with Doreen Carvajal of <a href="http://www.nytimes.com/2015/02/05/arts/design/picassos-granddaughter-plans-to-sell-art-worrying-the-market.html">The New York Times</a> that she would sell works privately and would judge “one by one, based on need,” how many and which of the remaining Picasso works she would put up for sale. </p>
<p>The news of her unusual strategy is spreading in select circles by word of mouth, leading to speculation that she either could flood the market or, without guidance from dealers, sell individual works for less than top dollar. In both cases, prices could depress across the board.</p>
<p>Ultimately, <a href="http://www.theguardian.com/artanddesign/2015/feb/06/pablo-picasso-art-sell-off-marina">according to Mark Brown</a>, arts correspondent for The Guardian, how much of an impact the sale will truly have on the art market depends on how much of her enormous collection she intends to sell. </p>
<p>It’s more realistic that she’ll be selling one or two pictures a year, “and that is a long way from flooding the market,” he wrote.</p><img src="https://counter.theconversation.com/content/37394/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Enrique Mallen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Over the last nine years, more money has been spent on Picasso than on any other artist. How much does Picasso’s granddaughter stand to earn? And why are some in the art world concerned?Enrique Mallen, Professor of Linguistics and Art History, Sam Houston State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/336542014-11-04T06:08:24Z2014-11-04T06:08:24ZIf you want a fair inheritance tax, make it a tax on income<figure><img src="https://images.theconversation.com/files/63567/original/wyrtvffm-1415034217.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Time for a tax rise?</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/anguskirk/7803586424">Anguskirk</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>No one likes tax but inheritance tax (or “<a href="http://www.telegraph.co.uk/finance/personalfinance/pensions/11127126/George-Osborne-scraps-the-death-tax.html">death tax</a>”) is the focus of particular moral outrage. On the face of it, this is odd. The reason tax is disliked is because it reduces the money you can spend. But as inheritance tax is only payable <em>after</em> you have ceased to exist, you’re not actually losing out by paying it. </p>
<p>Admittedly, some who retain their mortal coil can object. Potential inheritors fear the loss of a windfall. But say we were to make laws without knowing whether we might benefit from an inheritance or not, then what kind of inheritance tax laws might we advocate for?</p>
<h2>The veil of ignorance</h2>
<p>The philosopher John Rawls famously created the concept of the “original position” – a stance where individuals agree to principles of justice from behind a “veil of ignorance”. From this position, they do not know where they would end up in society. They might be rich or poor, male or female, black or white, gifted or not. The aim: to make society’s rules fair.</p>
<p>The parties in the original position did not directly address the issue of inheritance tax but they did address a closely connected one: equality of opportunity. Rawls argued that if you don’t know your particular talents, or your starting point in life, you would want opportunities to be fair. For those “similarly motivated and endowed” there should be “roughly the same prospects of culture and achievement”. </p>
<p>This is a powerful – if hard to realise – ideal; and commitment to it is widely shared. For instance, that opportunities should be fair seems to underpin the UK Social Mobility and Child Poverty Commission’s recent recommendation that unpaid internships <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/367461/State_of_the_Nation_-_summary_document.pdf.">should be outlawed by 2020</a>. As internships depend on your contacts and your capacity to work unpaid, they are not available to everyone who is “similarly motivated and endowed”. </p>
<p>And it is surely unremarkable to note that without some inheritance tax opportunities for individuals will never be fair. Your life-chances are likely to be determined by your lineage (possibly a talented ancestor) or by your ability to ingratiate yourself to those in high places. </p>
<h2>A fairer system</h2>
<p>Helpfully, Rawls also explained how we might realise a fair system of inheritance tax, an idea he attributes to John Stuart Mill. We should remind people that we do not tax the giver (in this case, the dead) but the receiver, based on the amount they are receiving and their economic situation: </p>
<blockquote>
<p>Those inheriting and receiving gifts and endowments pay a tax according to the value received and the nature of the receiver.</p>
</blockquote>
<p>In effect, this proposal treats inheritance tax as a kind of graduated income tax. If a high-earner and a low-earner inherit the same amount they should pay a different tax. This seems fair and, Rawls hopes, might “encourage a wide and far more equal dispersion of real property and productive assets”.</p>
<h2>Current UK law</h2>
<p>Rawls’s suggestion also enables us to explain what is wrong with current UK inheritance laws. First, in most cases, inheritance tax is paid out of the deceased’s estate <em>before</em> any beneficiary receives anything. Currently, it is <a href="http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm">not common</a> for recipients to pay after they inherit. Second, while no inheritance tax is paid on estates worth less than £325,000, anything above that amount is mostly taxed at 40%.</p>
<p>This means that, under the current rules, a £1m estate is liable to a tax of £270,000. It does not matter who the recipients are or how many there are. But surely it would be fairer for a single high-earner inheriting £1m to pay more inheritance tax than 100 average earners jointly inheriting the same amount?</p>
<p>One worry – particularly in the UK – is what will happen to unrealised assets (principally property). If I were to inherit a £1m house would I be liable immediately for a tax of between £200,000 and £400,000? This seems a little tough. But any tax could be made payable only when the property is sold. If I then receive a £400,000 tax bill I still walk away with £600,000 – not a bad profit on a free gift. </p>
<p>Rules would be necessary to prevent people gaming the system. If you gave away an inherited property to, say, a child or partner, the tax would then be owed by them. And the amount due would be based on the relevant tax rates at the time of death rather than when the property is sold. This would prevent people delaying or bringing sales forward to take advantage of changing tax rates. </p>
<p>But we should avoid the detail and stick with the big picture. If you didn’t know your position in society you would want opportunities to be fair. This requires some kind of inheritance tax. Treating inheritance tax as a kind of income tax is not only fair; it also helps to explain why so many people object to current UK rules.</p><img src="https://counter.theconversation.com/content/33654/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dean Machin is currently writing a report on data access for the UK's Social Mobility and Child Poverty Commission. </span></em></p>No one likes tax but inheritance tax (or “death tax”) is the focus of particular moral outrage. On the face of it, this is odd. The reason tax is disliked is because it reduces the money you can spend…Dean Machin, Teaching Fellow, Philosophy, UCLLicensed as Creative Commons – attribution, no derivatives.