Angus Taylor’s death tax scare campaign does not stand up to scrutiny but it might work
Updated ,first published
Death taxes!
Ever since Australia’s state and federal governments abolished deceased estate taxes in the late 1970s and early 1980s, the prospect of any government reviving this bereaved tax has been politically toxic.
Even the hint of such a move is enough to make retirees start gnashing their teeth. For the opposition, who wanted to take some of the paint off the government, the prospect of a scare campaign over the refund of death duties (however improbable) proved irresistible.
Oppositions, no matter how biased, run scare campaigns because they work. Like the creepy figure appearing in the mirror in a horror movie, it’s predictable but always effective.
Labour’s famous “Mediscare” campaign in 2016 is an example of this. Bill Shorten exploited the idea, though unfounded, that the Turnbull government could privatize Medicare to devastating effect. It didn’t matter; Labor regained its number of seats in the 2016 election.
Similarly, in 2019, the opposition led by Shorten was badly damaged by claims that Labor would revive “death taxes” by announcing loan reforms – which were untrue – but like Mediscare, this helped Scott Morrison to victory.
Labour’s decision to change the tax treatment of trusts was used by Taylor to restart the death tax fear campaign in the hope that it would provide a similar boost to the opposition’s political fortunes.
The 2019 campaign in particular was notable not only because it worked, despite Labor’s repeated denials, but also because, after an initial push from the opposition, the campaign took on a life of its own on social media. Some people actually believed such a tax was possible under Labor.
“It’s a death tax by stealth. There’s no doubt about it,” Taylor said cheerfully on Monday about upcoming changes to taxes on trusts.
But here’s the thing. No sane government would introduce a death tax without at least a long lead time, a clear mandate after leading to an election, and a very good explanation of why such a move is necessary.
There are arguments that can be made in favor of a death tax. It can be used to help level the playing field for people who weren’t lucky enough to inherit something from their parents or grandparents, but it’s a tough sell. Australians have made it clear for decades that they hate the idea of a death tax.
What does Labour’s fifth federal budget include? Actually What has been done is to change the tax treatment of trusts, including testamentary discretionary trusts (TDTs), which are established to manage a deceased estate after the death of a person, from 1 July 2028.
This type of trust is one in which one person is appointed as trustee and that person has the authority to decide how and where income from the trust (including, for example, income from stocks, rent from an investment property, or income from a business) is distributed.
A testamentary discretionary trust, which can also be used to manage a deceased estate, differs from a fixed testamentary trust, in which a decision is made about how the money and assets in the trust will be distributed, but the trustees cannot change it.
Fixed trusts will not be affected by Labour’s reforms and regulations will be made for certain discretionary trusts, such as those set up to help care for a child.
There is also a distinction for the approximately 10,000 testamentary trusts currently operating in Australia. In other words, anyone who currently has a testamentary discretionary trust will not be affected by this policy change, and if you want to avoid the 30 percent minimum tax rate on a discretionary trust in the future, you will need to set up a fixed trust instead.
Taylor’s campaign for a new “death tax” is disingenuous, and he knows it.
This resembles the opportunism of an opposition leader whose party is trailing both Labor and One Nation in the polls.
James Massola is the chief political commentator. He was previously national affairs editor and Southeast Asia correspondent. He won the Quill and Kennedy awards and was a Walkley finalist. Connect securely to Signal @jamesmassola.01Connect with: X or email.
