Innovative businesses could keep using the 50 per cent capital gains tax discount under a proposal being reviewed by Treasurer Jim Chalmers as he moves to address concerns that Labor’s budget would hurt high-growth firms and productivity.
As Labor confronts parliamentary deadlock over its tax overhaul, government MPs in inner-city marginal seats say younger voters are giving the government credit for trying to make housing affordable as they see investors desert auctions and property prices come down.
Behind the scenes, Chalmers is locked in talks with business groups and investors who have pleaded with Labor to reverse course on the decision to overhaul the capital gains discount for all assets. They want to confine a new inflation-adjusted discount to residential property, not shares and private business.
While Labor had anticipated resistance to the budget changes from property investors, they were surprised by the outcry about the CGT tax changes on social media, fanned by young businesspeople.
Several sources familiar with the government’s thinking said it might retain the Howard-era 50 per cent discount to firms that fit the criteria of a start-up. These businesses would be taxed at higher rates under the new inflation-adjusted model, so the government may allow them to use the 50 per cent model or formulate a new discount, closer to the 50 per cent version.
Cabinet ministers are working out how to legally define an innovative start-up. Determining the criteria is proving difficult, but the government could apply the criteria already used to identify businesses that qualify for existing start-up programs, as well as those that offer employee share schemes.
The carve-out is expected to be accompanied by an expansion of existing CGT exemptions for businesses with turnovers of up to $2 million, which Labor will probably extend to higher-turnover firms, and an expected backdown on testamentary discretionary trusts, which the Coalition has weaponised into a “death tax” scare campaign. Both of these changes were revealed by this masthead last month.
Prime Minister Anthony Albanese wants to announce these changes before a fortnight of parliamentary sittings later this month, following a two-day inquiry into the bill widely criticised as rushed. Labor believes that the Greens will cave and pass the bill quickly to avoid backlash from left-wing voters, possibly in return for a longer inquiry into NDIS cuts.
Various polls, including the Resolve Political Monitor, have found that Labor’s budget was one of the most unpopular in recent history. Due to a war-induced inflation shock, the government decided not to offer immediate tax cuts to soften the blow of the broken promises.
Opposition Leader Angus Taylor told this masthead on Tuesday the Coalition’s polling had sunk because Labor’s budget was rubbing off on both major parties and fuelling One Nation’s rise. Asked about his statement at a press conference on Tuesday, Taylor used different language.
“Well, I’m just saying people are angry. People are angry. I mean, talk to them,” he said. “I can tell you what, this prime minister has no idea. He has no idea, and so I can understand why they’re angry.”
Many Labor MPs are frustrated that the new CGT discount’s application to businesses, not just property investors, has made it more difficult to sell the housing message.
Ash Ambihaipahar, MP for the Sydney seat of Barton, said she went to four auctions, including one at Kingsgrove, on one day, and first home buyers were more commonly bidding against one another than against investors. The first-term MP said parents of younger couples were pleased with the changes, saying “it’s about time”.
“There’s a positive vibe,” she said, arguing the reaction on the ground was far more positive than the media and polling were picking up.
“I got more feedback on the gun [buyback, announced after the Bondi massacre] at a local level than this budget.”
Josh Burns, who holds the Melbourne seat of Macnamara against the Greens, said he had received emails from voters asking questions about the CGT changes, but he had also won support.
“I often get stopped in the street and receive free and frank advice. But it has been encouraging to hear people in my community, including when the Treasurer [Jim Chalmers] came and visited, to stop us, tell us how they agree with the tax changes,” said Burns, the government’s special envoy for housing.
Bennelong MP Jerome Laxale said there were three groups of opinion on the budget in his community: those who supported the tough calls; cautious voters – “perhaps influenced by misinformation, exaggerated memes and scare campaigns” – who wanted explanations; and those outright opposed, “as they always have” been.
The government has argued its housing budget was designed to equalise the treatment of labour and capital income, and to make housing more affordable. But Treasury secretary Jenny Wilkinson complicated its message last month when she defended the tax increases on the basis that “revenue needs to be raised from somewhere”.
Special Minister of State Don Farrell appeared to echo Wilkinson when asked by The Nightly on Monday why Labor had proposed its changes.
“Well, we needed to get our budget under control,” he said. “The ideal outcome is that we put downward pressure on the deficit, on the federal deficit, so that ultimately that leads to lower interest rates.”
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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.