A top adviser to former Labor leader Kevin Rudd and NSW Premier Chris Minns has joined a growing group warning that Prime Minister Anthony Albanese and Treasurer Jim Chalmers’ decision to hike the capital gains tax on businesses will stifle the economy and drag productivity, as Labor MPs grow uneasy about the backlash over the controversial measure.
Albanese and Chalmers overhauled the property price-fuelling combination of negative gearing and the CGT discount last week and extended the tax rise on capital gains to all types of investments.
Lachlan Harris, a close adviser to Rudd when he was prime minister, congratulated Labor for removing the discount from residential housing, a move he described as long overdue, but argued that going beyond housing would create “economy-wide” perverse incentives.
The concerns of the Labor figure, an investor who founded and sold the Budgy Smuggler swimwear firm, are shared by some of the Labor caucus.
Harris argues that a policy ostensibly designed to create equity between generations would actually make it “much, much harder for young Australians to start businesses, to work in small businesses, and for those businesses to raise money”.
“This is not just for tech start-ups in Surry Hills: this is businesses in Box Hill and Castle Hill,” he told this masthead.
“I, personally, think we need to reverse that measure to ensure the CGT change only applies to residential property. I really would urge the PM and treasurer [to] consider carefully whether this policy needs to be significantly adjusted so that a lot more consultation can occur over a long period of time.”
Harris, whose parents founded the Harris Farm Markets chain, said he had sold his businesses years ago and “it’s the next generation of young business builders that will be hit hardest by this change”.
The Coalition is preparing to announce financial protections for small businesses in a speech by shadow treasurer Tim Wilson on Wednesday, as the opposition tries to recruit small businesses to the tax battle it intends to fight through to the next election.
High streets stores, drone firms key to Australia’s national security, and outfits involved in Labor’s Future Made in Australia policy would all be caught up, Harris argued, as a new inflation-adjusted model of taxing gains could lead to some firms being taxed above 40 per cent when they sell their businesses, up from about 23 per cent under the previous rules.
“Those businesses are the future of the Australian economy,” he said. “This is not just a problem for tier one AI start-ups, it’s a problem for every single business in the country.
“It is a very significant change to the incentive structure of starting a business and employing people.”
Several Labor MPs from three states, none of whom wanted to go public, said they were broadly supportive of Labor’s most courageous budget to date.
However, they were nervy about public complaints about the effect on shares, business sales and tax treatment of so-called “bucket companies”, a popular tax set-up for hundreds of thousands of businesses that fear being double-taxed.
The government is replacing a flat 50 per cent discount on capital gains to a model indexed to inflation with a minimum 30 per cent tax.
A Labor source said Albanese had not yet found the language to explain why the CGT changes were being applied to shares and businesses. The source pointed to last week’s exchange with a finance influencer who asked why CGT changes were not confined to housing, to which Albanese replied: “We want to make sure the drive of investment was to more productive sides.”
Asked about the CGT shift during his Monday blitz of major cities to campaign on equity and home ownership, Albanese said he was focused on “better aligning income from work with income from assets”.
“What they’ll be doing is having for [the] future, from the future date, is taxed on real gains, so making a difference,” he told reporters in Adelaide. “That’s called tax reform, and it’s something that’s needed in this country.”
The government released Treasury advice to this masthead on Monday afternoon. The document shared by the government claimed that the OECD, a league of rich nations, had found “no clear evidence to support favourable treatment of capital gains to promote investment”.
Chalmers announced a $13 billion productivity package in last week’s budget as well as a loss carry-back scheme, bigger instant asset write-offs, and incentives for start-ups in a bid to support cashflow and boost early-stage investors. The suite of policies was welcomed by the business lobby.
Other sources in the caucus said they were worried that ex-Liberal voters who had drifted to Labor since 2019 – helping snatch a group of suburban seats such as Deakin, Menzies, Reid and Bennelong – would protest. Chinese and Indian-speaking channels have been actively debating the tax changes, sources said.
Labor’s voting coalition has expanded from blue-collar workers to take in many white-collar professionals. Those aspirational voters have not been turned off by Labor rhetoric about redistribution of wealth, and have soured on the Coalition’s economic and cultural attitudes.
The remarks from Harris, who remains an influential thinker in Labor circles, carry weight because it is rare for him to criticise Labor policy.
Seek founder and venture capitalist Paul Bassat and investor John Wylie are also pushing for the CGT proposals, yet to be legislated, to be wound back. Labor doyen Bill Kelty told this masthead last week that Chalmers should reduce the top marginal rate of income tax and index tax brackets. Chalmers announced a $250 tax offset last week.
The treasurer said on Sunday that he understood tech start-ups in particular could face higher tax bills under the new model, opening the door to a UK-style exemption.
Another business figure with connections in the Labor Party, who requested anonymity to be as frank as possible, said government ministers appeared to misjudge the public reaction to the CGT changes partly because the cabinet contained so many property investors and so few people who ran businesses.
“Where this ends up going is you have a situation where anyone who opened their own pharmacy, carpet business or dentistry, and hopes to sell it as part of their retirement, will be caught,” they said.
“They would be mistaken to think a [carve-out for tech start-ups] will solve this.”
Bennelong Labor MP Jerome Laxale, who represents a seat with an affluent Chinese-speaking community, said on Sky News that he’d received questions in his inbox about the tax moves, some critical and some supportive, while outer suburban Liberal frontbencher Aaron Violi said he’d been “inundated” with emails from younger Australians worried about their future wealth.
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Paul Sakkal is Chief Political Correspondent. He previously covered Victorian politics and won a Walkley award and the 2025 Press Gallery Journalist of the Year. Contact him securely on Signal @paulsakkal.14.Connect via X or email.