A leading economist has criticised the Turnbull government’s company tax cuts, warning the foreign investment benefits are illusory.

As the Coalition inched closer to a deal with the Senate crossbench on Wednesday to pass the stalled bill, Professor Peter Swan said a largely unknown practice used by foreign investors threatened to erode some of the economic benefit of the $65 billion plan.

University of NSW Business School professor Professor Swan is an expert on investment who advised the Campbell committee of inquiry into the financial system in the early 1980s. His advice led it to propose a system of dividend imputation, whereby company tax payments are refunded to Australians but not foreign dividend holders, a recommendation taken up by Paul Keating in 1987.

Peter Swan has questioned the foreign investment benefits of the company tax cut package. Credit:Wolter Peters

His new study on every Australian share traded over the past 14 years concludes foreign owners have largely “exempted themselves from paying corporate tax on marginal investments” by selling their shares to Australians ahead of dividend payments and then buying them back again afterwards.