BEN HARVEY: It’s a tax that gets paid when you die — I think that meets the definition of a death tax

The recent Federal Budget was a newspaper headline writer’s dream.

The Prime Minister creates a trust deficit with the public after fibbing about taxing trusts to fix the deficit.

Sub-editors around the country have been plucking this low-hanging fruit ever since Jim Chalmers said “I commend the bill to the house” 10 days ago.

For cynical old journos, skewering the 2026 Budget has been as easy as shooting Pinocchio in a barrel; it’s so riddled with broken promises it could have been made in Geppetto’s workshop.

The Albanese Government’s unashamed duplicity has condemned it as the worst since Paul Keating promised us tax cuts that were so certain they were “L.A.W. Law”.

So venomous about last week’s Budget were the people polled they said it was worse than Joe Hockey’s 2014 debacle.

If you think that you need a Bex and a good lie down. Chalmers’ document was a dog, but Hockey’s had fleas.

Our 41st Treasurer has fumbled his rationale for tax changes but his ham-fistedness is nothing compared with our 38th treasurer’s argument that raising the fuel excise was OK because poor people didn’t drive cars.

The 2014 and 2026 budgets contained sensible policy adjustments, but good economic strategy was overshadowed by bad messaging before and after they were handed down.

How would we feel about Chalmers’ most recent Budget had he and Anthony Albanese not lied about their intentions?

The jury is out on the effect of restricting negative gearing but does anyone who understands taxation law believe discretionary trusts aren’t routinely used to game the tax system?

I limited that question to people who understand the system because the great unwashed most certainly don’t.

When most people think of a family trust they imagine people with Logan Roy-spec wealth avoiding tax by hiding assets.

For the record, you can’t hide assets in a trust; they’re all there listed. The trust just puts them out of the reach of angry ex-spouses and creditors.

You can use trusts to game the tax system, though.

Let’s take the example of a family which has put a couple of apartments they own in a trust.

The trust is administered by someone called a trustee (often a lawyer) and the trustee directs rental income from the apartments to the beneficiaries — people (often children) who are on a designated list of recipients.

At the moment, the income generated by the assets in the trust is not taxed until it’s distributed to the beneficiaries, who then pay tax at their top marginal rate.

That system allows the trustee to direct income to beneficiaries who are on lower rates.

“We’ll also introduce a minimum 30 per cent tax rate on capital gains from July next year, and on discretionary trusts from July the year after,” Chalmers said on Budget night.

Note the use of the word discretionary.

A discretionary trust allows the trustee to decide how much money goes to which beneficiary — as opposed to a fixed trust, which is a set-and-forget operation.

It’s the right of “discretion” that’s been abused — applied in a way that funnels money to those beneficiaries on lower tax rates.

From July 2028 (assuming Albanese holds his nerve) the rental income from those hypothetical apartments will be taxed inside the trust at the rate of 30 per cent.

The beneficiary still gets taxed, but he, she or they will get a credit on the tax already paid by the trust because the taxman is prevented from double dipping by the Constitution.

It’s the vibe of the thing, apparently.

Is that change unfair? Hardly.

Here’s where it gets icky for the Government. The proposed laws will hit so-called testamentary trusts, which are set up through a person’s will and are activated when that person dies.

Parents use them so their estate isn’t squandered by beneficiaries who can’t be trusted with money (Federal MPs, for example) and also to ensure their hard-earned goes to certain people and only those people — not the gold-digging husband or wife of those people.

No politician wants to be seen to raise a new tax — especially a death tax — which is why Tanya Plibersek was turning herself inside out to avoid conceding the point to Natalie Barr on Sunrise this week.

Sorry, Tanya, it’s a tax that gets paid when you die. I think that probably meets the loose definition of a death tax.

To ensure the Treasury gets its hands on the money fast, Chalmers is encouraging seniors into an early grave by dropping their private health insurance and chancing the public surgery waiting list.

It’s a kick in the teeth older Australians no longer have because they got their falsies through BUPA or Medibank.