Raising money for the public purse is never popular while demand for increased expenditure grows every louder. Revenue staff are charged with squaring this circle and do so using three income streams – the challenge, as always, is to optimize revenue. Each stream has limits:
Taxing the Living– provides the largest income stream through income tax and VAT. However, the recent failed experiment of increasing higher rate tax showed that there are limits. In a mobile world raising personal tax to uncompetitive rates simply drives the high earners away.
Taxing the ‘Yet to be born’– the collapse of the Greek economy, with its brutal impact on children and grand-children, showed the world that long term public borrowing to pay todays running costs is a recipe for disaster. Many countries are experiencing high rates of youth unemployment leading to the brightest and best moving away – leaving their old country to answer the question – who will pay higher rate taxes tomorrow?
Taxing the dead– Inheritance tax dates back generation. Traditionally a small, but useful, source of income – it is publicly popular because it is aimed at just the wealthy – who tolerate it because they have just enough room for avoidance to allow long term family wealth to be preserved.
New arrivals on the inheritance tax scene are the ‘Eternal Youth’ – the Baby Boomers who have re-written the Life’s rules at every stage – from spoilt brats through Rock’n’Roll and full employment to Bucket lists in retirement.
In life they put themselves first at every stage – and now it seems this same quality that may just save their country from financial disaster. Let me explain –
Eternal Youth care little for estate planning or intergenerational wealth transfer, instead they feel ‘entitlement’ – the wealth they have acquired through life is theirs ‘by rite’ and they will keep it. They will continue to live in their valuable properties, enjoy their gold-plated pensions and keep their savings tacked away – ‘for their old age’. In doing so they are condemning their children and grandchildren to 70+ years of working life with little prospect of ever becoming a property owner.
For Revenue staff however this is mana from Heaven – death is inevitable and when it visits this generation will leave 40% of their estate to the country. In the UK, at the moment IHT generates £3–£4 Bn annually – but over the next 30 years this should total £500bn – thank you!