(Image: Gorkie/Private Media)

If the Bank of Mum and Dad could issue shares, they’d be hot property — for business is projected to boom.

Last week, The Australian published analysis showing inheritances will grow significantly in the 2030s-to-40s as baby boomers pass away, with the peak occurring in 2041. Assistant governor of the Reserve Bank of Australia Luci Ellis concurred that the predominant means for young people to secure homes will soon be parental assistance.

This follows increasing coverage of the coming glut of inheritances. Much of it has been based on unreleased research by self-styled “money expert” Vanessa Stoykov, who found that almost two in three Aussies over 60 plan to leave their kids an inheritance (though the amount is uncertain), and one in four Aussies are banking on an inheritance to afford “a better future”.

Yet this growing discussion is leaving out crucial details that frame the coming “wealth tsunami” as less a self-help solution than a social problem, and less a remedy for intergenerational inequality than a driver. Folksy references to thrifty “mums and dads” looking after their kids risk normalising a patrimonial “society Jane Austen might recognise“.

Most gifts go from rich great-grandparents to rich grandparents

Firstly, many commentators failed to mention the elephant in the room — inequality. Stoykov finds that “an entire generation of Aussies is about to inherit an average $320,000 each”.

But most people won’t inherit nearly as much, given the average is boosted by the top 10% who own almost half of all wealth in Australia. The Grattan Institute finds the mean inheritance for people in the wealthiest 20% is over three times bigger than for those in the poorest 20%.

Secondly, inheritance is often pitched as benefiting “young people”. Stoykov suggests a key concern is youth squandering the money, while others suggest they might start to vote with their coming inheritances in mind.

However, the Grattan Institute finds most inheritors are themselves over 50, due to our ageing population. And most young voters seem to know this; most consistently vote for Labor and the Greens, especially in 2019, despite their redistributive tax policies.

Young people are more likely to receive gifts than inheritances. However, gifts remain substantially smaller — $1,000 on average. This may change as skyrocketing house prices puts pressure on well-off parents to cough up earlier. But as most lower-middle-class boomers’ wealth is tied up in housing and reverse mortgages remain under-utilised, life events like downsizing or death will continue to dictate a modest, sclerotic flow of assets for most.

As Grattan’s Danielle Wood writes, “the growing wealth of baby boomers is likely to end up concentrated in the hands of a select group of relatively well-off generation Xers and millennials” — the latter of which will be in their 60s by the time any inherited cash hits their bank accounts.

Inheritance taxes a political non-starter… or are they?

Australia used to tackle intergenerational inequality via state and federal estate taxes. They once accounted for around 10% of state government tax revenue.

But relentless campaigning by farmers and small businesses saw Bjelke-Petersen’s Queensland government axe theirs. The other states followed in fear of a retiree exodus, filling the revenue hole with pokie machines. Fraser joined in by abolishing the federal tax in 1979.

It’s often claimed we can’t bring them back, or make bequests subject to capital gains tax, because it would be political suicide.

Such proposals would certainly face political challenges — after a conspiracy theory that Labor would introduce a “death tax” caused alarm in 2019, one can only imagine the attack-ad director’s delight at the real thing.

But recent research from the University of South Australia shows their unpopularity may be overestimated. The majority of the study’s participants “were of the view that people should spend their money with abandon, and if there happened to be any left when they died, there was no harm done if the tax office took a cut”. A limited sample size means more research is needed. However, it corresponds with other findings that familial legacies have become less central to people’s identities, so tax debate could be less emotionally charged.

Meanwhile, a slew of establishment voices, including the OECD and the Tax Institute, have called on Australia to re-join the vast majority of developed nations in imposing an inheritance tax. The New Zealand government has commissioned research into the fortunes of high-wealth individuals, which has been interpreted by some as the first steps towards a new tax regime.

And the problem is only getting worse. Our retirement system was set up to ensure retirees had enough to live on, but many retirees are now net-savers. Overly generous superannuation tax concessions see them earn more from untaxed capital gains than they spend which, despite apparent ambivalence to bequeathing, usually flows to their kids by default.

Start at the top

What imperilled Australia’s previous estate taxes was perceived low thresholds and the ease with which families with good accountants could dodge them. They also often applied to one’s spouse, handing opponents the potent political weapon of grieving widows.

Targeting very wealthy households only, encompassing large gifts before death, and exempting spouses would help neutralise these lines of attack. The Australia Institute’s 2016 proposal is a sensible one — they’d exempt everything up to $2 million, tax fortunes between $2-10 million at 20%, and above $10 million at 30%, which would generate approximately $5 billion revenue per year.

Advancing such a proposal would be an uphill battle against entrenched interests. But it’s past time we tried to bring “death taxes” back from the grave.