The Australian Labor Party (ALP) has announced an Australian Investment Guarantee to increase private-sector investment in projects offering high-paying jobs in the lead up to the 2019 federal election.
The Australian Investment Guarantee allows all businesses to immediately deduct 20 per cent of investment in eligible depreciable assets, except structures such as buildings. The remaining investment in eligible depreciable assets not immediately deducted would continue to be deductible over the effective life of each asset.
This discussion paper offers an economic analysis of this policy initiative.
- The Australian Investment Guarantee would not only stimulate investment in physical capital such as mining, manufacturing and infrastructure, it would also increase investment in the services sector by supporting expenditure on depreciable intangible assets such as intellectual property and computer software.
- Unlike most investment allowances, which typically are temporary in nature, the Australian Investment Guarantee would be ongoing, providing a permanent lift in investment incorporating the most modern technologies.
- The Australian Investment Guarantee would be more effective in stimulating investment than a company tax rate cut of equivalent cost.
- Since the ALP has supported the Government’s company tax rate cuts for small and medium-sized enterprises (SMEs) and the extra instant asset write-off provisions announced in the 2019 Budget, the Australian Investment Guarantee for small, medium and large businesses provides greater economic incentives to invest than the Coalition’s tax policies.
- The Australian Investment Guarantee would reduce the effective tax rate on new investment to less than 26 per cent.
- Based on US modelling of the effects of accelerated depreciation, the Australian Investment Guarantee could create up to around 77,000 new jobs and increase average wages by up to $1,500 per annum.
- Job-creating investment responses to accelerated depreciation provisions such as the Australian Investment Guarantee, particularly by SMEs, are likely to be relatively rapid.