Australia is slowly, but surely, edging towards a credit rating downgrade.

Standard & Poor's looks likely to be the first ratings agency to pull the trigger, having already put the Federal Government on a negative watch.

It appears that the Commonwealth had one more budget in which to advance deficit repair before S&P runs out of patience with an administration that is focused on savings measures, too many of which are unpalatable to the Senate.

Having ruled out Labor's suggestions to roll-back capital gains tax discounts and limit negative gearing, perhaps the Government needs to look at a few more revenue measures of its own.

It backed away from lifting the GST anticipating, correctly I think, that the popular backlash would be great from households already struggling with record low income growth.

So, where can it turn if it does want to raise more revenue and stave off a credit rating downgrade?

A blast from the past offers one possible answer, which would also head off growing wealth inequality.

Resurrecting inheritance taxes could breathe life into an ailing federal budget.

Death duties used to be part of Australia's tax mix, until then Queensland premier Sir Joh Bjelke-Petersen axed his state's in the late-1970s, triggering the other states and Commonwealth to copy his move.

But that has left Australia in the minority of developed nations.

While some countries have emulated by dropping their inheritance taxes over the past few decades, 19 out of 34 OECD members still have some form of estate duty on direct descendants (while a couple of others only tax bequests beyond the immediate family).

The US, UK, Japan and Germany all have significant death duties, with Japan's rate at 55 per cent the world's highest.

Inheritance taxes efficient, but unpopular

Moreover, inheritance taxes are incredibly efficient on economic grounds.

After all, you can't really change your behaviour to avoid them. We're all going to die one day.

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This is surely one of the biggest frustrations for economists — for some reason, the 'best' taxes also seem to be some of the most unpopular ones.

People grudgingly accept income tax and stamp duty, which are 'bad' taxes.

They discourage people from doing positive things, like working more or moving to a more suitable home.

There is one big flaw in inheritance taxes, aside from being deeply unpopular, however.

Experience shows that many people manage their affairs to minimise the inheritance tax they have to pay.

For instance, they might set up a family trust during their lifetime to avoid some of the tax bill.

These problems are not insurmountable, after all there's plenty of historical experience in Australia and current lessons from overseas about how governments can minimise this avoidance.

However, the combination of avoidance and various exemptions (such as high thresholds) used to minimise popular backlash against death duties mean they raise relatively little revenue.

Belgium raises the largest proportion of its taxes from the dead but, even there, the OECD found estate taxes make up just 1.6 per cent of total tax revenue.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 5 minutes 25 seconds 5 m Should Australia bring back an inheritance tax? ( Michael Janda )

So are death duties worthwhile if they raise so little?

The answer is yes if they prove to be an effective tool to redistribute some of the accumulated assets of the wealthy to those born without a silver spoon anywhere near their mouths.

Certainly, renowned economist and author of a best-selling analysis of wealth and income inequality, Professor Thomas Piketty, thinks estate taxes have a significant role to play.

"If you have labour income of $50,000 or $100,000 you are going to pay a lot of tax, but if you receive $1 million or $2 million in property from your family the tax rate will be zero per cent — there is no inheritance tax — which is very small as a tax rate."

Venture capitalist Mark Carnegie perhaps sums it up best in his in-principle support of inheritance taxation, despite the fact his estate would be affected.

"I don't believe that the only tax-free occupation available in Australia should be sitting in a Toorak coffee bar waiting for your dad or mum to die."