Calls to tax billionaires are growing. Is there a better way to tax the rich?
Here’s why billionaires can face lower tax rates than people whose income primarily comes from wages.
The debate over taxing billionaires is gaining traction, particularly in Australia where citizens will vote on a potential billionaire tax in November. Meanwhile, economists in the United Kingdom have called for a net wealth tax on assets exceeding £10 million. While Australia may not have been at the forefront of this discussion, the same question applies here: should the ultra-wealthy contribute more in taxes, and if so, how best to do so?
To understand the issue, it's essential to recognize that billionaires accumulate wealth differently than most Australians, employing structures like trusts, private companies, capital gains, and tax minimisation strategies. One example is the accumulation of wealth through unrealised capital gains, which are assets' rising value that remain untaxed until sold.
For instance, Australia's 200 richest people saw their wealth surge from $197 billion to $707 billion over a decade, largely due to these unrealised capital gains. Unlike wages, which are taxed each year, unrealised capital gains are generally not taxed annually, allowing billionaires to defer taxes until they sell an asset. This deferral can lead to lower tax rates for billionaires compared to wage earners.
Solutions to this disparity include implementing a wealth tax on billionaires or taxing unrealised capital gains annually. However, few countries adopt the latter due to the difficulty in valuing assets and their fluctuating nature. Australia already has some wealth taxes, such as land taxes and taxes on large superannuation balances, but these are limited in scope.
The government's recent tax changes on negative gearing and the capital gains tax discount are steps in the right direction, but more comprehensive reform is needed. The inconsistency in Australia's tax system affects all citizens, creating significant inequities and hindering economic growth. So, the real question isn't whether Australia should tax wealth—clearly, it does—but whether the existing mechanisms are effective.
A billionaire-specific levy alone won't solve the problem; rather, the focus should be on creating a tax system that treats different forms of wealth consistently. This approach would not only ensure billionaires contribute their fair share but also make the tax system fairer and more productive for everyone.
Written by urgent.news from The Conversation AU's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
