Opposition Leader Bill Shorten has proposed a policy to potentially raise $2 billion by cracking down on multinational profit shifting and boosting Australian Tax Office funding to investigate corporate tax avoidance.

In a move described by Shadow Treasurer Chris Bowen on Monday as the “opening salvo in the battle of ideas” with the government, Shorten said most of Labor’s revenue raising measures would come from reducing the amount of debt for which multinationals could claim deductions in Australia.

Minerals Council of Australia CEO Brendan Pearson said Australia already had strong tax integrity rules and any changes to existing tax arrangements must be “carefully considered” and not detract from Australia's ability to attract investment capital.

He said the thin capitalisation changes proposed will impact investment in Australia by limiting legitimate tax deductions for interest expenses, which would particularly harm the ability of capital intensive industries like mining to debt fund investments in Australia.

Pearson indicated that the policy change being dubbed a “multinational tax avoidance” tax would, in reality, impact on all business debt funding investments into Australia and potentially Australian based multinationals expanding offshore including legitimate deductions – rather than actually being targeted at tax-avoidance arrangements.

He said Australia's tough thin capitalisation rules were already strengthened from July 1 last year, and any further changes would add to perceptions of sovereign risk of investing in Australia.

Australia's safe-harbour test was reduced from 75% of debt to equity to 60% and includes a broader range of debt compared with many other countries. It included “total debt” versus more narrowly defined “related party” debt.

Pearson emphasised Australia's taxation integrity, citiing ATO second commissioner Andrew Mills’ comments on the subject last October.

“With changes over recent years, we have transfer pricing and anti-avoidance laws that are – if not the strongest – among the strongest in the world and we are not afraid to use them,” Mills said.

Pearson said the existing OECD Base Erosion and Profit Shifting (BEPS) process was the most effective and appropriate way to deal with global tax avoidance, and said Australia should continue to work co-operatively in a co-ordinated way through that process.

Business Council of Australia CEO Jennifer Westacott had concerns along similar lines, saying some of the company tax measures that Shorten announced had the potential to slow economic growth and further diminish Australia’s competitiveness.

“While proposed changes to hybrid entities, reporting arrangements and the ATO’s funding could be further explored, the Business Council has serious concerns that proposed changes to thin capitalisation laws risk undermining major capital and infrastructure projects and deterring investment,” Westacott said.

“This would come at a time when, more than ever, Australia needs investment to drive jobs growth and economic resilience.”