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Good morning everyone,

I came across this headline a few days ago:

"I think we're over-relying on income [taxes]. I don't think we're taxing wealth as heavily as we could," Commonwealth Bank of Australia (CBA) CEO Matt Comyn told a public hearing at Parliament House in front of the House of Representatives economics committee: "I think it's part of a broader structural issue that needs to be addressed."

Interesting, I thought, the CEO of Australia's largest bank advocating higher taxes on wealth. In Australia, everyone listens to Comyn because CBA's revenue (A$27.2 billion in FY2023) is more than 1 percent of Australia's GDP (A$2.4 trillion in 2023). His words carry enormous weight.

What I took away from Comyn's comments about higher taxes on wealth is that it's only a matter of time before they're here.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

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1. What is a wealth tax good for?

Comyn's wealth tax proposal is a response to two problems:

1. The fear of intergenerational wealth inequality. (→ Baby boomers are currently the richest generation in the country, and younger generations are struggling to get on the property ladder.)

2. Australia is broke and needs more money. (→ The country is heavily in debt, and because it spends more than it takes in, it's not in a position to pay off the debt.)

Let's look at these problems in more detail.

2. Intergenerational wealth inequality

According to a report by Australian financial services company AMP, baby boomers are currently the wealthiest generation in Australia, with an average household net worth of around A$1.6 million in 2019-20.

What has fuelled the growth of baby boomers' household net worth is largely the result of 40 years of loose monetary discipline (aka increasing the money supply, cutting interest rates, pumping liquidity into the markets in times of crisis, etc.), which has boosted equity and house prices. The chronic undersupply of housing in Australia has also affected house prices.

Over the next few years, baby boomers will pass on their wealth to their children. This is known as intergenerational wealth transfer. A 2021 Productivity Commission report estimates that by 2050, Australia will have seen a transfer of wealth of around A$3.5 trillion.

In many cases, this wealth transfer will cement wealth inequality by creating dynastic wealth.

The problem is that even if a Millennial or Gen Z individual or household starts investing in stocks or property now, they won't catch up with the staggering wealth of their peers who have inherited stock portfolios or property.

If your parents or grandparents were in the market and you inherited their wealth, you'll always be ahead, provided governments continue to exercise little monetary discipline.

And as house prices continue to rise, younger generations without assets will find it increasingly difficult to get on the property ladder.

As I've mentioned here, this is one of the driving forces behind a phenomenon called financial nihilism, where young people bet the farm on highly speculative bets like meme stocks or meme coins because they don't think they've ever had a fair chance.

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3. Most governments are broke

Most of the world's "advanced economies" face the same problem: they are in debt and spend more money than they take in.

Remember, there aren't that many ways for governments to improve their cash flow. They can:

• Cut spending. (Very unpopular with everyone.)

• Raise taxes on some or all. (Unpopular with the social group affected, potentially popular with the rest.)

• Debase the currency. (Usually goes unnoticed.)

Cutting spending is political suicide for any government. In fact, as the social groups with entitlements grow and the workforce shrinks, it becomes increasingly hard for governments to cut spending.

Matt Comyn's proposal to tax wealth more falls into the second category of raising taxes on some. It would be unpopular with the wealthy households that would be affected. But it would be popular with people with less wealth and with people on the left who sympathize with the belief that redistribution is the solution to inequality.

Meanwhile, the debasement of the currency is likely to continue unabated.

Currencies are debased by increasing the money supply, lowering interest rates, or implementing other measures (tax cuts, subsidies, etc.) to stimulate the economy in the short term. Governments debase their currency so that they can spend without raising taxes.

In short, debasement is like an invisible tax.

4. It's happening everywhere

It's important to note that the trend towards higher taxes on wealth is not unique to Australia.

Just this week, US Vice President Kamala Harris proposed a 28% tax on long-term capital gains for households earning US$1 million or more a year, lower than the 39.6% rate former President Joe Biden proposed, but higher than the 20% at which assets held for more than a year are currently taxed.

Moreover, the trend towards higher taxation of wealth has already begun. In Australia, from 1 July 2025, an additional 15% tax will be levied on investment returns from superannuation accounts (retirement accounts) with a balance of more than A$3 million at the end of the financial year.

Politically, it'll be interesting to see whether the idea of taxing wealth more heavily will be exploited mainly by left-wing parties, or whether even right-wing parties will deviate from their traditional pro-market stance and jump on the bandwagon.

5. Same same but different

In my view, taxing wealth more heavily is the government's declaration of bankruptcy. They have mismanaged their budgets so badly that they have to go after the wealth of their citizens.

Moreover, taxing wealth more heavily is treating the symptom, not the cause. It's redistribution at the margins, while monetary debasement continues unabated at the core. It's perpetuating the problem because more monetary debasement will create more wealth to redistribute. And so on. And so on.

Savers have been and will be punished. And investors have been and will be rewarded.

The reintroduction of sound money like Bitcoin - money whose supply can't be easily manipulated - would be the solution, but I'm not holding my breath.

But as I wrote here, as long as government currencies are debased, sound money like Bitcoin will rise in value.

Have a great weekend, everyone!

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