Bob Hawke’s former senior economic adviser Ross Garnaut is urging the Morrison government to seize on the crisis to adopt a radical new business cash flow tax that would boost investment.

Dr Garnaut, who helped Mr Hawke implement major economic reforms when the economy was struggling in the 1980s, said his proposed corporate cash flow tax would create a powerful incentive for business investment via an immediate 100 per cent tax deduction for capital expenditure.
Ross Garnaut says a corporate cash flow tax would reward new investment. Erin Jonasson
Unlike a cut to the 30 per cent corporate tax rate that would cost billions of dollars for the heavily indebted federal budget, the corporate cash flow tax could be broadly revenue neutral and only reward new business investment.
“It’s perfect for the circumstances and would give us a much bigger boost to investment than cutting the company tax rate,” Dr Garnaut said.
“We won’t get out of the downturn unless there is a lot of investment.
“By systemically favouring business investment and innovation over those who are not investing, it will be very good for productivity growth.”
Winners would include businesses making large new investments and taking risks on innovation. Businesses with negative cash flows would receive a tax refund.
Firms making average returns in competitive industries would also face minimal tax.
Businesses collecting high profits in concentrated industries such as toll roads, energy transmission and technology platforms would also pay more tax.
Companies earning high returns from legacy investments and not doing much new capital expenditure would pay more tax under the proposed system.
The system’s rules would discourage international tax avoidance, artificial interest costs and inflated transfer pricing payments to related parties which the Australian Taxation Office has been investigating Silicon Valley internet giants over.
Equity and debt would be treated equally, with the 100 per cent capital expenditure write-off obliterating the need for interest tax deductions.
“It removes a big source of tax avoidance artificial debt payments and debt refinancing,” Dr Garnaut said.
American energy giant Chevron in 2017 lost a landmark $340 million transfer pricing case over inflated interest deductions it claimed to slash its local tax bill.
Asked about the concept at The Australian Financial Review Business Summit crisis briefing last month, Business Council of Australia chief executive Jennifer Westacott said a simpler cut to the 30 per cent corporate rate failed to pass the Parliament, so a more radical corporate tax change would be even more difficult.