While Australia has never implemented a wealth tax (albeit most of the globe has not), with Covid-19 support schemes increasing the Federal government’s debt burden, the implementation of a one-off, fixed wealth tax may have the potential to fuel recovery.
In saying this, it is no surprise that the introduction of a wealth tax is constantly met with stern opposition in Australia; indeed it is a subject which polarises opinions. While many perceive it to be a direct means of redistribution to facilitate wealth equality, the rival view often considers it a coercive tool of government to repossess privately acquired wealth. When asked about whether Australia should implement the tax, most people will reply that it will discourage hard work and further disenchant a society which is already taxed at high rates. We must recognise that if one is increasingly taxed, they may in turn be discouraged from saving and investing, consequently weakening the economy.
Yet, the unprecedented and unsustainable economic framework in which we now live begs the question of how the debts forged by Covid-19 will be reconciled. It is estimated that the Australian Government has funded approximately $133 billion towards the pandemic, including JobKeeper ($70 billion), JobSeeker ($14 billion), boosting employer cash flow ($31.9 billion), and 2x $750 payments to eligible households ($8.83 billion). The downturn is demanding a response which will yield quick results and which will not demand excessive resources to implement.
It is at this point which we must turn our minds to the implementation of a one-off wealth tax in Australia. Wealth is so unevenly spread here that in 2017-18 Australia’s wealthiest 20% of households possessed 63% of all household wealth, while the lowest 20% owned less than 1%, manifesting a 0.621 Gini coefficient for wealth. To put that into perspective, the top 20% therefore had an average wealth of 92 times more than the bottom 1%.
This gap shows that there is room to implement the tax. And in doing so, a one-off, fixed response, wealth tax will significantly assist in funding Australia’s economic recovery. The wealth tax is characterised as a progressive tax on a person’s net worth (assets minus liabilities). Implementing it simply as a one-off tax is likely to gain more support as it will be viewed as a tool of cooperation, removing the nomenclature around it ‘punishing’ wealthy citizens. It will provide the government with the extra resources it desperately needs to restore health, social care, infrastructure and regional economic development.
Australia’s current attempt to reverse inequalities through the income tax is insufficient as it disregards multiple forms of wealth and thus limits a taxpayer’s contributions. In the words of economist Nicholas Kaldor, ‘Capital and income constitute two distinct … sources of spending power…a separate tax on each provides…a better yardstick of taxable capacity than either form of taxation itself’
So what would a one-off wealth tax look like in Australia? First, the introduction of the wealth tax would be constitutional in accordance with the legislative powers of the Commonwealth.
While most countries reject the tax, the countries which do enforce it levy the tax at around 1.5% – 2% once the taxpayer exceeds the prescribed threshold. Those countries include Switzerland, Spain, Norway and Belgium. In Norway, the taxpayer becomes liable once passing a net worth of approximately AU $230,000.
Countries worldwide are grappling with whether to implement a wealth tax to soften the blow of these new, extremely high, debts. In the UK, Labour Leader Keir Starmer called on the government to consider the introduction of a wealth tax to help fund the economic recovery. Starmer stated, “We are saying to the government, look at the idea of a wealth tax, we certainly support the principle that those with the broadest shoulders should bear the greatest burden.”. It is also at the forefront of the current US election, with Bernie Sanders and Elizabeth Warren pushing for a wealth tax in their respective campaigns.
And the wealth tax hasn’t only cultivated support on the political level. Earlier this month, Millionaires for Humanity (a group comprising 83 of the world’s richest people, including Jerry Greenfield and Abigail Disney) called on their governments to increase taxes on the wealthy to combat the economic crises. They demonstrated their role to play as conscious members of society and have levelled their financial status as their means of assisting.
All in all, a proposed windfall wealth tax, designed to assist economic recovery from Covid-19 is a plausible avenue for the Australian government. Indeed, if the UK and the US push through the wealth tax, it will only be a matter of time before Australia follows suit.
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