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Squeezed from both ends

Scott Galloway wrote last week about the obscene concentration of wealth at the top of American society and the tax system that quietly enables it. He’s right. And while his numbers are US-centric — he is American, after all — the same structural problem is playing out right here in Australia. Maybe with less drama, but just as effectively.

Start with this: 51.6% of all tax collected in Australia in 2022-23 came from personal income tax. Another 14.2% came from GST. That’s nearly two-thirds of the national revenue base sitting on the shoulders of ordinary working Australians and every modest purchase they make. According to the ATO’s own taxation statistics, that’s not a bug. That’s the design.

Meanwhile, Australia had 131 billionaires in 2021. They represent 0.001% of the population. Together they held 2.9% of all household wealth — more than the bottom 20% of the country combined. And they’re not paying income tax at anything like the rate a nurse or a teacher does, because most of their wealth doesn’t come as income. It comes as appreciating assets: shares, property, private equity stakes. Australia’s 50% capital gains tax discount for assets held longer than twelve months is a standing invitation to accumulate wealth in a form that’s taxed at half the rate of a salary.

Buy, borrow, die — and never pay tax

This strategy isn’t uniquely Australian. It’s global. Galloway calls it “buy, borrow, die.” You accumulate assets. You borrow against them rather than sell them, deferring any capital gains event indefinitely. Your debt is cheaper than your asset growth. You live extremely well. When you die, the estate crystallises the gain — and in Australia, unlike the US, there’s no inheritance tax. The unrealised gains pass to your heirs with a stepped-up cost base. The tax is simply never paid.

To manage all of this you spend millions on accountants and lawyers. In return, you avoid billions.

There’s a second problem that nobody in Canberra seems to want to talk about.

The tax base — already skewed toward labour rather than capital — is shrinking. Automation, AI and robotics are systematically displacing workers. Every worker displaced is a taxpayer removed from the system. Bots don’t pay income tax. They don’t pay GST on their living costs because they’re not alive. The economic value they generate flows entirely to capital: to the shareholders and owners of the platforms and machinery. Capital accumulates faster, labour contributes proportionally less, and the government’s revenue problem compounds quietly year by year.

We are being squeezed from both ends simultaneously. The wealthy extract value from the economy while minimising their tax contribution. Workers — the ones currently carrying 51.6% of the national tax burden — are being replaced by systems that carry none of it.

Galloway’s prescription for the US makes sense: tax capital gains as ordinary income, close the carried-interest loophole, fund proper enforcement of the existing tax laws. In Australia the equivalent conversation needs to happen around the CGT discount, the treatment of unrealised gains used as loan collateral, and the complete absence of any inheritance or estate tax. We had one once. We abolished it in 1979.

The options exist. The will doesn’t.

Then there’s negative gearing. In principle it’s defensible — allowing a landlord to offset rental losses against their income tax is not outrageous policy. But the principle has been stretched well past any reasonable justification. A second investment property? Fine, perhaps. A third, a fourth, a tenth? At some point “investment” becomes a tax-minimisation strategy dressed up as housing provision, and the rest of the market pays the price — quite literally. Investors with deep pockets and accountants on retainer can outbid first-home buyers by factoring in tax benefits those buyers simply don’t have access to.

We’ve built a system that rewards accumulation of the one asset ordinary Australians most need to acquire.

Wealth taxes are genuinely difficult to implement and have a mixed international record — twelve OECD countries tried them, and by last year only three remained. The wealthy pack up and the revenue estimates evaporate. That’s a real constraint. But the absence of serious policy action isn’t pragmatism. It’s capture.

The Australian government is not short of options. It’s short of will.

At some point, the arithmetic catches up. A tax system that rests on the shoulders of PAYG workers — who are themselves being automated out of the workforce — is not a stable system. Capital needs to take up more of the tax burden from labour. Not because of ideology. Because of maths.

The guillotine isn’t coming. But the fiscal cliff is.

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