“We are prepared to consider the tax system as one of a whole range of levers that may be useful.”

Dr Chalmers ruled out lowering the company tax rate but, while budget deliberations have not been finalised, it is understood he may be considering a form of business investment allowance, which is essentially a turbocharged asset write-off scheme.

Labor took such a policy to the 2019 election, saying it was better than a company tax cut because it could be targeted at specific sectors of the economy, could be turned off when no longer needed, and to benefit from it, a recipient had to invest in the business domestically, not share buybacks, which was one argument against company tax cuts.

Labor’s 2019 policy, called the Australian Investment Guarantee, was a brainchild of then shadow treasurer Chris Bowen who is now Climate and Energy Minister. It allowed businesses to immediately deduct 20 per cent off any new eligible asset worth more than $20,000. Eligible assets were defined as machinery, plant and equipment as well as intangible investments such as patents and copyrights.

During the COVID-19 pandemic, the Morrison government introduced a temporary scheme under which 100 per cent could be written off in the first year.

The Business Council of Australia has long advocated a permanent, economy-wide 20 per cent investment allowance in the absence of company tax cuts. In its pre-budget submission for this year, the BCA repeats the call, arguing “modelling suggests a 20 per cent investment allowance would lift GDP by around $17 billion in a decade and see wages grow”.

To specifically drive the transition towards net-zero emissions by 2050, the BCA advocates “targeted investment incentives to support the upfront capital costs of projects”.

“These could be in the form of a bonus deduction, or accelerated depreciation,” it says.

The Future Made in Australia Act is designed to try and lure capital to Australia, or stop it from leaving, by mimicking America’s Inflation Reduction Act.

Massive subsidies

Prime Minister Anthony Albanese and Dr Chalmers say it is no longer as simple a proposition as letting the free market rip, but one of economic and national security, more so as China uses massive subsidies to flood the globe with cheap products and create a dependency on what, in some cases, are critical products.

“This is how we align our national and economic security interests. It’s how we deliver another generation of prosperity, by making ourselves an indispensable part of the global push to net zero,” Dr Chalmers said.

“When it comes to public and private investment, it’s really important to remember that what we’re talking about here isn’t some kind of free‑for‑all of public funds. We’re talking about incentivising private investment rather than replacing it.”

Productivity Commission chairwoman Danielle Wood led criticism of the proposal, arguing that without an exit strategy the plan could risk creating a new generation of subsidy-dependent businesses.

She also claimed it would come at a cost by diverting workers and capital away from other parts of the economy.

But Dr Chalmers indicated Ms Wood misunderstood the policy because she was making obvious points that were already addressed.

“Danielle Wood made some important points, but some obvious points about making sure we get value for money,” he said.

“We’ve got strict frameworks, we’ve got exit strategies and off-ramps, and we’re taking into consideration the impact of these plans on the economy more broadly.

“Those are important points, but they’re also obvious points. They’re also factors that we are already taking into consideration as we finalise the policy. Frankly, it would be pretty strange if we weren’t.”

Meanwhile, Dr Chalmers said the revenue write-down in the budget that he first warned about last month would be around $9 billion over the four-year forward estimates.

Revenue windfall

The mid-year budget update released in December forecast a $69 billion revenue windfall over four years due, in part, to the iron ore price staying much higher than the $US60 budget forecast being higher than thought.

Dr Chalmers released Treasury analysis showing that as of April 12, 2024, the 20-day average was $US93.16 a tonne, down from a high of $US133.

“Under this analysis, Treasury concludes that the recent iron ore price decline had reduced the upgrade to the nominal economy by $35 billion and reduced the upgrade to tax receipts by almost $9 billion over the forward estimates,” the analysis says.

The budget is also downgrading China’s growth forecast for this ad subsequent years to less than 5 per ent.

“You can see why this is one of the reasons why we expect much, much smaller revenue upgrades in the budget than we’ve become accustomed to on the last couple of occasions,” Dr Chalmers said.

“That demands a bit of a different approach to the budget and that’s what you’ll see on 14 May.”

He reaffirmed the government still intended to hand down what would be a second successive surplus.