Business backs Labor’s 20% asset write-off

By Leith van Onselen

Last year, Labor launched its Investment Guarantee, which would see “all businesses in Australia will be able to immediately deduct 20 per cent of any new eligible asset worth more than $20,000, with the balance depreciated in line with normal depreciation schedules from the first year”.

The policy appears to have received the business lobby’s backing, with the Australian Food & Grocery Council CEO, Tanya Barden, today arguing Labor’s proposal would help stimulate investment. From The AFR:

The little-noticed 20 per cent instant asset write-off for capital expenditure above $20,000 is one of Labor’s few economic policies that will directly help the big end of town…

Australian Food and Grocery Council chief executive Tanya Barden said an upfront tax write-off for capital expenditure would “kick-start” subdued investment and help manufacturers avoid “sweating” ageing machines and equipment.

“This targeted and direct approach will stimulate investment,” she said. “It is something we’ve proposed for several years and we’re pleased the ALP has picked up something really similar”…

The Grattan Institute argued that policies like accelerated depreciation allowances and investment allowances would promote new investment directly and at far lower cost than cutting the headline company tax rate, as proposed (but now abandoned) by the Coalition:

There are alternatives to a full-blown company tax cut that could boost investment without delivering large windfall gains to foreign investors at such cost to the budget bottom line…

An investment allowance, via a tax deduction to businesses for the purchase of new assets, would provide incentives to boost investment. Since the deduction would apply only to future investments, not past ones, it provides incentives to investment without sacrificing tax revenue on existing investment.

In a similar vein, researchers Janine Dixon and Jason Nassios from Victoria University argued that implementing investment subsidies would create more capital investment than a company tax cut, as well as causing less drain on national income:

“In terms of improving the material welfare of the Australian population, the impact on gross national income is positive for the investment subsidy but not for the company tax rate cut,” Dr Dixon and Dr Nassios write…

“The investment subsidy is more effective for three broad reasons: firstly because it induces a greater investment response, and consequently a greater response in GDP, wages and employment; secondly, by improving returns for both domestic and foreign investors; and thirdly by protecting the revenue stream on legacy capital, the investment subsidy is not a drain on national income.”

Labor’s plan has been costed by the Parliamentary Budget Office at around $1.7 billion a year – well below the Coalition’s now abandoned company tax cut package – and will deliver far more ‘bang for the buck’.

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