A business cash flow tax offering an immediate full deduction for corporate expenditure should be pursued by Treasurer Josh Frydenberg to create a "powerful" incentive to invest and protect the economy against recession, says economist Ross Garnaut.

Dr Garnaut, who helped develop major economic reforms for the Hawke government, weighed in after Mr Frydenberg last week urged companies to help lift the economy's productivity by preferencing investment over special dividends and share buybacks.