Expert: Demographic development likely to lead to future wealth tax

Factors such as massive intergenerational wealth transfers, increasing wealth concentration and a declining trend in homeownership are likely to lead to wealth tax reforms in the coming years, according to Simon Kuestenmacher, co-founder and director of Demographics Group.

Ahead of his upcoming presentation at the Tax Summit, Küstenmacher said problems such as rising inequality and wealth concentration among the richest would become a much bigger problem for 35- to 45-year-olds.

While people in this age group generally do not currently hold positions of power, Küstenmacher says they will be there in ten years and will likely still have similar worldviews.

“They talk a lot about the injustice of the rich getting richer, and of course left-wing think tanks like the Australia Institute publish things every day about wealth inequality,” he said.

“The further up the food chain you go, the richer people become because it is relatively easy to keep your wealth. Accumulating it, on the other hand, is more challenging, especially when basic things like housing are so expensive.”

Küstenmacher said wealth taxes ultimately aim to counteract wealth concentration and pursue a more egalitarian approach to wealth distribution.

“At the same time, income tax would be relaxed and, of course, these wealth taxes would be progressive, so that the poorer and middle classes would keep all their income, but wealth would be taxed gradually as they go up,” he said.

Küstenmacher acknowledged that introducing a new wealth tax would pose challenges both from a political perspective and in terms of how wealth should be measured and taxed.

One of the easiest forms of wealth tax to implement would be to abolish stamp duty and replace it with a property tax, he said.

The Victorian State Government has already begun to focus on this model for commercial and industrial properties with the introduction of the Commercial and Industrial Property Tax on 1 July 2024.

“Abolishing stamp duty and replacing it with a property tax makes no political sense at the moment, because we live in an environment where two-thirds of voters own their own home. These voters do not want their greatest asset to be taxed and will simply vote for the other party,” said Kuestenmacher.

“[However]if you look at the demographic projections, essentially more people are going to die who are homeowners than people in their mid-twenties who are going to become homeowners.

“As this rental base increases, the number of people who would vote for a tax on wealth in the form of housing also increases.”

Küstenmacher said that even if renters do not make up the majority of voters, expanding that voter base could still lead to a significant shift in support for measures such as property taxes.

He said the Greens had already positioned themselves as a tenants’ party and their share of power in the government was growing.

“You could [policies] such as property taxes as a bargaining chip before the time comes when demographic reality allows for more renters than homeowners and such a tax is automatically introduced,” he said.

“It’s only a matter of time before this happens, because the trends suggest it will.”

Küstenmacher said that as wealth transfer between generations accelerates, the introduction of inheritance or inheritance taxes may also become more likely.

While intergenerational wealth transfers will not peak until the early 2040s and will remain high throughout that decade, a government seeking to maximize the benefits of this significant wealth transfer may well introduce new tax policies long before then, he said.

“If I were the state, I would want to have my fingers in the pie when that transfer happens, and I would want to introduce the inheritance or inheritance tax sooner rather than later because there is so much coming my way. At the very least, I would want it fixed by 2030,” Kuestenmacher said.