Progressive Money

Economics in the Real World · scenario 7 of 10 · about 12 min

“We must raise billionaire taxes before funding new public services.”

Why people make this argument

The claim draws on a strong sense of fairness. Many people see wealth as highly concentrated, and feel the richest should contribute more before anyone else is asked to. It also answers the 'how will you pay for it?' challenge directly, by naming a source of revenue that most taxpayers will not feel.

The strongest version has three parts. Large fortunes bring economic and political power, which taxes can reduce. New services need real resources, and taxes can free them up. And voters are more likely to accept new spending if they see the burden falling on those most able to bear it.

Ideas you'll need

  • What taxes do
  • Who spends what they receive
  • Wealth tax design
  • Whether tax must come before spending

What isn't in dispute

Australia has no annual tax on individuals' net wealth. The OECD found only four of its member countries still levied one in 2017, down from 12 in 1990, and that their revenue had, with a few exceptions, been very low.

The Commonwealth does not need to collect a tax before it can spend, but spending must be authorised by Parliament, and budget rules and election costings treat tax as the offset. From 1 July 2027, under changes announced in the May 2026 Budget, the 50 per cent capital gains discount gives way to an inflation adjustment with a minimum 30 per cent tax on gains.

How mainstream economists would analyse it

Mainstream economists would usually separate two questions: whether to tax the very wealthy more, and whether new services need new revenue.

On the first, views differ. The OECD concluded in 2018 that a net wealth tax is hard to justify where capital income and inheritances are already taxed well, but more justifiable where they are lightly taxed or untaxed. Concerns include valuing assets, avoidance and the mobility of the very rich. The Productivity Commission found in 2021 that asset prices, especially housing, matter more for wealth inequality than inheritances.

On the second, mainstream economists would say a large permanent service needs a credible revenue path over time, or sustainable borrowing. But nothing requires that revenue to come from billionaires, or to come first.

How MMT economists would analyse it

MMT economists reject the word 'before'. A currency issuer does not need tax revenue in order to spend, so new services need not wait for any tax. But many support higher taxes on great wealth for other reasons. Randall Wray, drawing on Beardsley Ruml, lists redistributing income and wealth as a core purpose of tax, alongside managing total spending and discouraging harms. He adds that taxing the rich does not by itself give poorer people resources; spending does.

MMT logic also implies a limit to the claim. Taxes make room for public services by reducing private spending, and the very rich spend a small share of their wealth, so taxing them frees up few workers or materials. If a new service risks inflation, the taxes that make room are those that reduce the spending it would compete with.

Your turn

Your turn: Should higher taxes on billionaires come before new public services? Give your conclusion, separating what taxing the very rich could achieve from whether services must wait for it.

Show a model response and the rubric

I would separate two claims. First, must tax come before spending? For the Commonwealth, no. It issues the Australian dollar and can fund a service once Parliament authorises it. Mainstream economists accept this too, though they say a permanent service needs a credible revenue path over time.

Second, should billionaires pay more? That is partly a value judgement and partly evidence. Higher taxes on great wealth could reduce inequality and concentrated power, which MMT and many mainstream economists see as legitimate aims. But the OECD found net wealth taxes have usually raised little revenue and face valuation and avoidance problems. And because the very rich spend a small share of their wealth, taxing them frees up few of the workers and materials a new service needs.

So services need not wait for billionaire taxes. If a service risks inflation, the taxes that make room are broader ones, or capacity has to be built first. Whether to tax great wealth should be argued on its own merits. Evidence that would change my view: a well-designed Australian wealth tax raising substantial revenue without large avoidance.

A strong response

  • Separates the operational question (must tax come first?) from the distributional question (should the very rich pay more?)
  • Explains what taxes do in restraining spending and freeing real resources
  • Recognises that taxing very wealthy households withdraws relatively little spending
  • Presents the design problems of wealth taxes fairly, citing evidence
  • Identifies which parts of the answer are value judgements

There is no single right answer. Reach your own conclusion, and be ready to say what evidence would change it.

Limitations and counterarguments

MMT's 'no need to tax first' holds operationally for the Commonwealth, but budget rules, costings and politics are real constraints, and a service seen as 'unfunded' may not survive a change of government. The point that taxing the rich frees few resources also cuts against some popular MMT-inspired rhetoric, and the very rich may respond by cutting investment or moving assets rather than spending.

On the mainstream side, the OECD's evidence comes mainly from European wealth taxes with many exemptions, and some supporters argue that fewer exemptions and better enforcement would raise more. A focus on revenue can also sideline the argument about economic and political power, which many see as the main reason to tax great wealth. And state governments, which use but do not issue the dollar, must raise or borrow money before they spend.

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