“The Business Council of Australia proposal for an Investment Allowance deserves support,” said Ben Oquist, Executive Director of the Australia Institute.

“Given the weakness of the Australian economy, with interest rates heading towards zero and monetary policy effectively being exhausted, other measures to stimulate the economy deserve support.

“The BCA proposal should be supported at least for the medium term, and could be strengthened with the addition of a ‘fiscal responsibility’ sunset clause.

“An Investment Allowance is preferable to an across the board company tax cut. Australia Institute research has shown a cut in the company tax rate would provide a large windfall gain to overseas investors, and only provide a small benefit to local investment.

“A targeted approach to investment incentives with a sunset clause would provide the stimulus we need today without the revenue problems in the future.

“As Nobel Prize laureate Joseph Stiglitz points out, if you want to encourage investment, then it is much better to target investment directly.

“The BCA proposal could be further improved with offsetting revenue measures such as clamping down on superannuation tax concessions, a diverted profits tax, or other anti-avoidance tax provisions, and including integrity measures to ensure the Investment Allowance only rewards new investment that would not happen otherwise.

“The announcement from the BCA effectively means large company tax cuts are dead and buried. This is good news for our economy, society and the Budget.”

Principles to Improve the Investment Allowance

• Addition of a ‘fiscal responsibility’ sunset clause
• Limiting guarantee to investment that occurs in Australia
• Offsetting revenue measures such as clamping down on superannuation tax concessions, a diverted profits tax (a ‘google tax’), or other anti-avoidance tax provisions
• Integrity measures to ensure Investment Allowance only rewards new investment, not investment which would go-ahead regardless