Does Australia Need an Annual Wealth Tax? (And Why Do We Now Apply One Only to Pensioners)

43 Pages Posted: 3 Mar 2016

See all articles by David Ingles

David Ingles

Australian National University (ANU) - Crawford School of Public Policy - Tax and Transfer Policy Institute

Date Written: March 1, 2016

Abstract

This paper argues that given the current hybrid income-expenditure tax system in Australia (hybrid IT/ET) a wealth tax could make sense as a way of ironing out disparities in the tax treatment of different assets. A wealth tax could be designed to approximate a comprehensive income tax (CIT) outcome by combining a wage tax with imputed asset income (deeming), or it could fall more lightly. We already have a harsh wealth tax in the welfare system, the asset test; the issue arises as to why we would confine wealth taxation to the not-so-well-off. If we move the income tax to an ET of, e.g., a consumption tax (CT) type a wealth tax might still make good sense, although the implied rate may be lower than under the wage tax as the CT taxes some part of economic rents. However if we move towards explicit taxation of economic rents using, say, the rate of return allowance (RRA) or its cash-flow counterpart, the Z-tax, a wealth tax may be less needed, as such rents comprise two-thirds the total return on capital.

Keywords: Annual wealth tax, deeming, economic rents, alternative minimum tax, rate of return allowance, expenditure tax, cash-flow tax, Z-tax, income tax

Suggested Citation

Ingles, David, Does Australia Need an Annual Wealth Tax? (And Why Do We Now Apply One Only to Pensioners) (March 1, 2016). Tax and Transfer Policy Institute Working Paper - 3/2016, Available at SSRN: https://ssrn.com/abstract=2740151 or http://dx.doi.org/10.2139/ssrn.2740151

David Ingles (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy - Tax and Transfer Policy Institute ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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