Giving to the next generation

An important, though often overlooked, aspect of this argument is that some start‑up entrepreneurs find it difficult to formally access funds from financial institutions, and so inheritances, particularly cash endowments, represent the key initial financing source for many prospective ventures.

However, it appears, at least for some people, that non‑economic, or more specifically, ethical, arguments for inheritance taxation override the adverse economic consequences of such impositions.

There appears a widespread distaste of unearned income or wealth windfalls, with bequests seemingly resting alongside lottery winnings and natural resource discoveries as some of the more unpopular forms of unearned wealth acquisition.

A source for the distaste towards inheritances, and hence support for inheritance taxation, is that not everyone can voluntarily endow others with bequests in equal measure, and so without taxes equality of economic opportunities would be foregone.

Putting aside that the productive usage of bequests by donors, for example to establish or expand a business, can deliver widespread benefits to non‑beneficiaries, distinctions between unearned and earned income, or wealth, seems too indiscriminate for clear guidance.

For example, other forms of unearned gain, such as Christmas presents, birthday gifts, or charitable donations, do not earn public rebuke, and attract calls for their taxation, in anywhere near the same intensity as inheritances do, if at all.

Classical liberals more appropriately distinguish between incomes and wealth attained either through voluntary means, say, by earning a wage or receiving a gift or donation, or through coercive means, say via government subsidies, tax breaks or regulatory holidays.

According to this perspective, voluntary transfers should ideally be left untouched by inheritance taxes or other coercive instruments that serve to expunge justly acquired property, whilst the coerced transfer of incomes and wealth should cease.

This approach would ameliorate the prospect that inheritance taxes would unintentionally level down the attainment of opportunities in society, whilst simultaneously ensuring that artificial privileges, such as those acquired through longstanding crony relationships between governments and businesses, are eliminated.

A final twist is served by James Buchananʼs argument that beneficiaries will wastefully expend resources to secure favouritism, and thus greater shares of the inheritance, from the donor, and thus taxes are required to prevent such perceived wasteful conduct.

It is difficult to surmise why such conduct by potential recipients would necessary represent a social cost borne by the entire community, and not a cost borne primarily, and willingly, by the individuals involved.

Furthermore, using the blunt instrument of taxing intra‑family income or wealth transfers is likely to come at the inappropriate cost of penalising transfers made in the cause of genuine affection between family members.

Inheritance taxes were relegated to the dustbin of Australian fiscal history during the late 1970s to early 1980s, through tax abolition initiatives at both federal and state levels of government.

These actions have proven to be far‑sighted ones and so, in the interests of avoiding higher taxes on Australians, it is best not to resurrect this odious tax idea which fails on economic and ethical grounds.