New independent modelling released today by the Victorian Universitys Centre for Policy Studies shows that an investment allowance like Labors Australian Investment Guarantee - is more effective in stimulating investment and improving national welfare than company tax cuts.

The modelling undertaken for the highly esteemed Melbourne Economic Forum shows that compared to a company tax cut, an investment subsidy is actually up to three times more effective as a stimulus to investment.

The authors cite three main reasons for an investment allowance or subsidy being more effective than a company tax cut:

Firstly because it induces a greater investment response, and consequently a greater response in GDP, wages and employment; secondly, by improving returns for both domestic and foreign investors; and thirdly by protecting the revenue stream on legacy capital, the investment subsidy is not a drain on national income. (p19)

Victoria Universitys Janine Dixon and Jason Nassios conclude: we strongly recommend that policy-makers consider an investment subsidy instead of a cut to company tax as a better value-for-money policy initiative to increase both investment and domestic material welfare. (p1)

This is a slap in the face for the government who continues to argue that its big business company tax cut is the best way to drive investment.

In an embarrassing finding for the Government, the modelling also concludes that a cut to company taxes will in fact lead to a reduction in real per capita domestic income. (p2)

For a government that has presided over the worst wages growth in decades, this is more evidence the Turnbull Government stands for the top end of town, not for the welfare of average Australian households.

One of the chief criticisms of a blunt cut in company tax, like the Turnbull Governments $65 billion big business tax cut, is that it delivers windfall gains to foreign shareholders because it doesnt guarantee any new economic activity in Australia.

Contrary to the governments unfunded and expensive plan, Labors targeted Australian Investment Guarantee only provides tax relief to businesses who invest in Australia.