New economic analysis in Australia released by the RBA yesterday has found that tax breaks on investment used during the global financial crisis (GFC) “substantially raised investment” and growth.
A new Research Discussion paper released by the RBA entitled “The GFC Investment Tax Break”, has found that in relation to investment allowances used by Labor during the GFC that “The tax break had a strong effect on business-level investment” and “both GDP growth and the cash rate would have been significantly lower in 2009 without the tax break”.
This new analysis demonstrates the value of the recession busting policies used by Labor to support jobs and in navigating the largest global synchronised downturn since the great depression.
It also highlights the value in tax breaks for business investment like Labor’s Australian Investment Guarantee which will allows companies to immediately write off 20% of the value of all new investments in both tangible and non-tangible assets in the first year.
Drawing on previous recent studies, the RBA points out that in the United States “accelerated depreciation raised eligible investment by 10 per cent during 2001–04 and by 17 per cent in 2008–10, relative to ineligible investment”.
This provides further justification and evidence that Labor’s Investment Guarantee will through generous and permanent new accelerated depreciation rules help support businesses large and small who want to invest in Australia.
This is a targeted, affordable and well thought out policy that won’t damage the medium term budget position and importantly rewards businesses that actually invest and create jobs.
This stands in stark contrast to the Government’s $80 billion big business company tax cut that drives a large structural hole in the budget, undermines future Government service delivery and does not guarantee any new investment.   
Recent modelling for the Melbourne Economic Forum by Janine Dixon showed that compared to a company tax cut, an investment subsidy is actually up “three times more effective as a stimulus to investment”.
Labor’s Investment Guarantee will improve cash flow making more attractive those marginal projects that otherwise may not get off the ground and will also drive investment in “knowledge assets” – supporting new investments in the new economy that embody more innovation and human capital.
When it comes to the budget and driving new investment, Labor has the superior plan.