Bold claim: true intergenerational fairness demands taxing capital, not just relieving the working class. Now, here’s the full picture, expanded and clarified for beginners, with a few thought-provoking angles to spark discussion.
Intergenerational inequality is on the political radar. Australia’s Treasurer Jim Chalmers and the new shadow treasurer, Tim Wilson, both signal a willingness to address it. They’ve each made it a through-line in their early speeches, and they continue to return to the theme. In practical terms, this means looking at how wealth is built, stored, and transmitted across generations, and whether the tax system currently tilts in favor of capital over labor.
The key question is who should bear the burden to close the gap. The straightforward answer, supported by many economists, is that inequality won’t be meaningfully reduced by cutting taxes for people who already have less money. In other words, tax relief for lower- and middle-income earners alone won’t close the structural gaps in opportunity and wealth. The more effective path is to adjust how much capital earns in our tax system—both through policies on capital gains and the treatment of investment income—and to ensure government services are funded in ways that support equal opportunity.
If you want to see smaller inequality in the long run, you typically need to shift some tax away from labor and toward capital. Taxing labor more heavily is politically popular, but it runs into a budget problem: the government’s books don’t tolerate broad tax cuts for everyone while also expanding services. Reducing inequality requires expanding, not shrinking, public services. Strong, well-funded services—like education, healthcare, housing support, and social safety nets—provide real pathways for mobility across generations.
A broader trend matters here: the share of national income going to labor has declined over the past five decades, while the share going to capital has risen. Today, labor’s slice sits around the mid-50s (about 54%), and capital’s share has increased correspondingly. As automation and artificial intelligence advance, the labor share could shrink further, which would intensify the reliance on capital income and profits. That shift could widen the gap unless tax policy and public funding patterns respond.
This isn’t just about fairness in abstract numbers. If capital income is taxed too lightly, or if capital allowances leave too much room for price appreciation and investment returns to outrun wage growth, the public purse can weaken. In Australia, for instance, base capital gains tax arrangements and negative gearing have been topics of debate for years. Critics argue that current rules give capital owners outsized advantages relative to wage earners, contributing to affordability pressures like housing rising faster than incomes.
What to do in practice? A starting point would be:
- Reconsider the capital gains tax (CGT) discount; a reduction or removal would re-balance incentives toward productive investment rather than perpetual asset price inflation. Note that the historical CGT discount of 50%, introduced in 1999, has often been cited as overly generous relative to inflation and broader economic conditions. A more measured approach could still curb distortions without triggering a full tax increase on capital.
- Limit or rethink negative gearing policies; reducing the extent to which losses on investment properties can offset other income would help align property investment with real economic productivity.
- Strengthen taxation on immovable, non-relocatable capital—such as mineral resources and land—which cannot be shifted to friendlier jurisdictions. Past proposals like the Resource Super Profits Tax and Minerals Resource Rent Tax illustrate political hurdles but remind us that geography and material wealth are potent tax bases worth reconsidering.
- Consider inheritance and estate taxes as tools to prevent long-running accumulation of wealth across generations, while balancing equity with incentives for entrepreneurship. Australia previously experimented with inheritance taxes in the early to mid-20th century, then repealed them. The debate continues: could a modern, carefully designed inheritance levy curb entrenched inequality without stifling opportunity?
The big practical takeaway is that capital must bear a fairer share if we want intergenerational fairness to improve. This is especially urgent as younger generations derive income more from wages while older generations derive more from capital.
Two big gaps in the current regime stand out:
- CGT policy alone isn’t enough. Halving or removing the CGT discount would help, but it won’t by itself fix the imbalance between capital and labor income.
- Tax competition for mobile capital. As capital can relocate globally with digital connectivity, countries compete to attract wealth. This makes focusing on immovable capital—like minerals and land—more important than ever.
Historically, Australia has faced political cycles around reforms in this space. Attempts in 2010 and 2012 to introduce broader taxes on mineral wealth faced fierce opposition and were rolled back. In today’s climate, that means any meaningful reform would likely require careful negotiation and a broad consensus across political lines.
In summary, if the goal is to reduce intergenerational inequality, the plausible path involves reshaping capital taxation and ensuring robust public services, rather than simply extending tax relief to workers. The evidence suggests that capital’s long-run advantage—bolstered by price gains and profitable investments—outweighs wage gains for many households. To rebalance, policymakers should consider stronger taxes on capital income and wealth, while investing in services that expand opportunity for all generations.
Controversial spark: is it fair to tax inherited wealth more heavily when many people rely on inheritance to achieve financial stability? And does taxing capital risk discouraging investment and growth? And this is the part most people miss: bold reforms require political wit as well as economic clarity. Should governments pursue higher capital taxes even if it means stricter rules for investments, or should they pursue more aggressive public investment funded by capital taxes to secure long-term intergenerational equality? Share your view in the comments: do you think stronger capital taxation would help, or would it slow growth and innovation?
About the author: Alan Kohler is a finance presenter and columnist for ABC News and a contributor to Intelligent Investor.
