Taylor’s rebooted death tax scare franchise is flimsy. But it might stick

Death taxes!

Ever since Australia’s state and federal governments abolished deceased estate taxes in the late 1970s and early 1980s, the prospect of any government reviving that levy on the grieving has been politically toxic.

Even the hint of such a move is enough to start retirees gnashing their teeth. For an opposition desperate to take some paint off the government, the prospect of a scare campaign over the return of death duties (no matter how unlikely) has proved irresistible.

Oppositions run scare campaigns, no matter how tendentious, because they work. Like the creepy figure who appears in the mirror in a horror movie, it’s predictable but always effective.

Labor’s infamous “Mediscare” campaign in 2016 is a case in point. Bill Shorten exploited the idea that the Turnbull government could privatise Medicare to devastating effect, even though it was baseless. It didn’t matter – Labor won back a swag of seats at the 2016 election.

Similarly, in 2019, the Shorten-led opposition was badly damaged by claims Labor would revive “death taxes” – which was untrue – through franking credit reforms, but it helped propel Scott Morrison to victory.

Labor’s decision to change the tax treatment of trusts has been seized upon by Taylor, to reboot the death tax scare campaign franchise, with hopes it will give the opposition’s political fortunes a similar boost.

That 2019 campaign, in particular, was notable not just because it worked – despite Labor’s repeated denials – but because, after an initial shove from the opposition, the campaign gained a life of its own on social media. Some people genuinely believed such a tax was in prospect under Labor.

“It’s a death tax by stealth. There’s no doubt about that,” Taylor blithely declared on Monday about the looming changes to taxes on trusts.

But here’s the thing. No sane government would actually introduce a death tax, at least not without a long lead time, a clear mandate after taking it to an election and a very good explanation for why such a move was necessary.

There are arguments that can be made in favour of death tax. It could be used to help level the playing field for people who haven’t been lucky enough to inherit something from their parent or parents, but it is a hard sell. Australians have made it clear for decades that they hate the idea of a death tax.

What Labor’s fifth federal budget has actually done is make changes, from July 1, 2028, to the tax treatment of trusts including testamentary discretionary trusts (TDT), which are set up to manage a deceased estate after a person dies.

This sort of trust is one in which a person is appointed as the trustee and that person has the power to decide how and where income from the trust – which could include income from shares, rent from an investment property or income from a business, for example – is then distributed.

A testamentary discretionary trust is different to a fixed testementary trust – which can also be used to manage a deceased estate – in which a decision is taken on how money and assets in the trust will be distributed – but the trustee can’t alter it.

Fixed trusts won’t be affected by Labor’s reforms and there will be carve-outs for certain discretionary trusts, such as those set up to help care for a child.

There’s also a carve-out for the approximately 10,000 testamentary trusts that are already operating in Australia. In other words, no one who has a testamentary discretionary trust now will be touched by this change of policy, and if you want to avoid that minimum 30 per cent tax rate on a discretionary trust in future, you will have to set up a fixed trust instead.

Taylor’s campaign on a new “death tax” is disingenuous, and he knows it.

It smacks of opportunism from an opposition leader whose party is trailing both Labor and One Nation in the polls.