Australia last introduced accelerated depreciation on 26 February, 1992 as part of Paul Keating’s One Nation package.
Keating’s goal was to kick-start private investment activity during the early 1990s recession.
Accelerated depreciation was scrapped as part of the tax changes that followed the 1999 Ralph review.
There are five big reasons for re-introducing accelerated depreciation:
1. It worked last time – spectacularly!
2. It unlocks private investment
3. It supercharges the construction sector’s huge economic multiplier
4. It can link to a green “New Deal”
5. It proves and pays for itself.
1. It worked last time – spectacularly!
Accelerated depreciation lifted private investment within a few months of its introduction.
Prior to One Nation, private gross fixed capital formation (GFCF) had declined for 11 quarters – it dropped by 20 percent in real terms.
After One Nation, GFCF immediately turned the corner. Twelve quarters later it had risen by 37 percent in real terms … and kept rising.
The graph below shows historical GFCF as a percentage of GDP. The turn around is stark.
2. Unlocks private investment
The private sector accounts for 70 percent of building construction and engineering activity.
The Rudd Government stimulus programs and the Building Australia Fund will provide a significant investment boost.
However, most construction activity and plant investment will remain funded by the private sector.
Accelerated depreciation will unlock private capital and get it back to work.
3. Supercharges the construction sector’s huge economic multiplier
Construction investment links to most economic sectors. The construction sector’s economic multiplier is 2.8.
Every unlocked dollar flows through the community almost three times over.
Some 15,000 construction jobs were lost during the past six months. 75,000 more workers will meet the same fate according to the Construction Forecasting Council’s latest report.
Accelerated depreciation will help reverse this trend. More investment equals more jobs.
4. Links to a green “New Deal”
The Property Council’s well-known green depreciation proposal ties accelerated depreciation rates to higher environmental performance.
Existing tax laws distinguish capital allowances that deal with plant from building amortisation rates. Therefore, it’s easy to provide both an incentive that boosts economic activity AND an incentive to retro-green Australia’s 330 million sqm of existing commercial property stock, most of which is more than 25 years old.
5. Proves and pays for itself
Accelerated depreciation benefits can’t be hoarded. Accelerated depreciation can only be claimed once real dollars are invested. Consequently, it proves itself as an economic stimulus measure.
Accelerated depreciation also pays for itself. Over time, there is no loss to government revenue, as taxpayers must stop depreciating an asset for tax purposes before it reaches the end of its economic life.
And here’s another dividend – accelerated depreciation massively simplifies Australia’s complex capital allowances system.
In short, accelerated depreciation can deliver an economic boost, maximise green dividends and slash red tape.
[Source: ABS - 5204.0]
[Source: ABS/Construction Forecasting Council]
Peter Verwer |
Monday, 4 May 2009 6:00 AM |
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