Business Council demands more investment allowances

Business Council of Australia (BCA) chief, Jennifer Westacott, has called on the Morrison Government to implement a Labor-style investment allowance in place of company tax cuts. From The AFR:

Under Labor’s scheme, which was costed at $1.8 billion a year, all businesses in Australia would have been able to immediately deduct 20 per cent of any new eligible asset worth more than $20,000…

Ms Westacott called for a broad-based investment allowance that would apply to investments such as machinery and equipment, buildings and structures and “the increasingly important intangible assets”.

“In practice an investment allowance would work as an extra deduction, and mimic the impact of a company tax cut on investment rates of return,” she said.

“If the Parliament delivers an investment allowance, businesses will be able to unleash the new investment needed to build a more productive and innovative economy. That will help drive stronger wages growth and deliver the new jobs Australians need.”

It’s worth pointing out that 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 company tax rate:

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 an investment subsidy 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.”

Clearly, expanding investment allowances would deliver far more ‘bang for the buck’ than cutting company taxes.

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