The Albanese government initially intended to confine the capital gains tax changes to housing, but was advised by Treasury to broaden the increase to all asset classes, a move that has it locked in battle with the small business sector and investors.

As Prime Minister Anthony Albanese refused point-blank to consider any changes to the CGT policy other than the already-flagged carve-out for tech start-ups, sources confirmed the policy was broadened beyond housing less than a month before budget day.

Before the government accepted the Treasury advice, it was hinting heavily that the then-speculated CGT changes would apply only to residential housing. Dan Peled

As detailed this week in the Treasury advice released by the government, the department advised the Expenditure Review Committee that if a reduced CGT rate applied only to housing, investors could set up companies to circumvent the rules.

This was subsequently debunked by experts who said it would be too complicated for most, and the practice could be stopped by anti-avoidance tax rules. Broadening the application of the change also allows the government to raise more revenue.

The decision to abolish the 50 per cent CGT deduction for assets held for at least a year, replace it with the pre-1999 inflation indexation model, and apply it to all assets has muddied the government’s budget pitch about helping young people buy a home.

It has outraged the SME sector, which claims to be collateral damage from a budget that was supposed to be about housing, and has underwhelmed younger voters at whom it was aimed, especially those investing in shares, cryptocurrencies and ETFs as a way to try to build a house deposit.

Anthony Albanese pictured in this digitally altered meme faces a concerted social media campaign against his CGT changes.  u/frankgreeff_ on Instagram

Before the government accepted the Treasury advice, it was hinting heavily that the then-speculated CGT changes would apply only to residential housing.

“The treasurer has made public statements, and I have as well, and I think the prime minister has, about examining the intergenerational issues affecting housing in Australia,” said Finance Minister Katy Gallagher in mid-February, as budget deliberations were in full swing.

“We’ve been clear on that. We are interested in a discussion on the intergenerational issues around housing.”

Amid growing calls for further carve-outs from the CGT change beyond just tech start-ups, Albanese remained adamant. “No,” he said when asked on Perth radio whether he was contemplating further change.

As reported by The Australian Financial Review, the government, with the support of the Greens, intends to rush the legislation for the CGT increase and negative gearing curbs through parliament before July 2, when it rises for the winter break.

This tight deadline leaves time for a cursory Senate inquiry at best, something that has angered the Coalition and the teals.

“Labor refused to take these policies to an election. They are now refusing to give time for scrutiny in the parliament and outside of the parliament,” said Opposition Leader Angus Taylor.

“They are frightened of small business people saying this is not good enough. They are frightened of Australians saying this is a government that simply doesn’t understand what it is doing. So they are going to try to rush it through.”

Independent Allegra Spender said there were genuine concerns with the application of the CGT changes.

“Rushing this through will only result in bad policy, unintended consequences and less likelihood the changes will last,” she said.

“The government can’t expect community support for tax changes that are sprung on them without proper engagement on concerns.”

In his official reply to the budget on Wednesday, shadow treasurer Tim Wilson launched a “Stand with Small” campaign, which, he said, would “back the self-starters of the nation and to get their input about how our economy needs to be restructured”.

Wilson pledged that a Coalition government would introduce a Small Business Act that would include a single national definition of what constitutes a small business and legal maximum payment terms to small businesses from government and big business. It would also include a right to be heard.

“Each new law should require a small business regulatory impact statement, and provide a pathway for feedback and where small businesses should also be heard – from the RBA, ASIC, the ATO and Fair Work,” Wilson said.

There will also be new and expanded minimum requirements for government procurement that must come from small business.

“We will replace Labor’s pessimism with Liberal optimism. A nation where the taxpayers are respected, hard work pays off, and Australians feel in control of their lives,” he said.

PM to ram through CGT, negative gearing changes as dissent grows

The Albanese government will fast-track legislation to increase capital gains tax and curb negative gearing through parliament before the July winter break, in an attempt to contain the growing political blowback, including by reducing the time available for a parliamentary inquiry.

Amid growing hostility towards the budget and calls from small business and teal independents to exempt more than just tech start-ups from the CGT increase, Prime Minister Anthony Albanese showed no sign of backing down, claiming it was all about housing.

Anthony Albanese in Perth as part of the budget roadshow. Holly Thompson

Confident the government will have the all-important support of the Greens, Albanese said the first tranche of budget legislation will be introduced to the House of Representatives the week after next.

Sources told The Australian Financial Review this would be the legislation to replace the 50 per cent CGT deduction with the pre-1999 inflation-based model underpinned by a 30 per cent floor, and to restrict future negative gearing to new properties only.

“Our policies are very clear. What we are simply doing is returning the CGT system to what was there before 1999,” Albanese said.

“What we’ve seen since then is a massive distortion of investment towards housing, away from other forms of investment, because of the changes that were made.”

Albanese said the tax increase on trusts would “take longer to develop” and not be legislated until later in the year, indicating there may be room to move on the more contentious measures, such as the imposition of a 30 per cent minimum tax on discretionary testamentary trusts, which the Coalition has labelled a de facto death tax.

Reserve Bank of Australia assistant governor Sarah Hunter said on Tuesday that the budget tax increases, combined with the current spate of interest rate rises, could lead to a cooling of the housing market, which is what the government wants to achieve.

After the CGT and negative gearing changes are introduced in the first week of June, there will be a two-week break before parliament sits again for the last week of June and the first week of July, beyond which is a five-week winter break.

With the Greens – who hold the balance of power in the Senate – expected to pass the tax increases, sources said the minor party has been told by the government it wants the legislation through by the end of that first week in July, before the break.

That allows, at most, about three weeks for a Senate inquiry.

“They don’t want this dragging out over the winter break,” said one source familiar with discussions between Labor and the Greens. “They don’t want a long inquiry.”

Amid a fierce backlash from the small- and medium-business sector about the immediate and longer-term impact of the changes to CGT and trusts, Jim Chalmers released a Treasury note on Monday claiming the average tax rate on capital gains will only increase from 19.3 per cent to 21.4 per cent over the next decade, and that it would be impractical to limit the changes to property.

But Independent MP Allegra Spender, who advocated strongly for tax reform in the run-up to the budget, urged the government to get the changes right rather than rush. This included exempting more than just tech start-ups from the tax increase.

“We need to reduce our reliance on income tax by reducing tax rates, and to pay for that, I think we need to reduce some of the concessions on CGT, negative gearing and structures like trusts,” she told the Financial Review.

“But the government has significant work to do to get the structures and parameters right to avoid some of the problems highlighted in the last week.

“The impact of the [CGT] indexing model affects all businesses with low capital investment, such as knowledge-based businesses, and so the government has to consider broader carve-outs or measures in this space.

“The government should be consulting widely – it is with the tech sector, and needs to go further with business owners, fund managers and the broader community. These measures will be judged by getting the balance right, not by being delivered quickly.”

Spender said the government should also bring forward the details of the extra income tax cut it is planning to unveil before the next election in the form of an increase to the $250-a-year Working Australians Tax Offset, as this would help it prosecute the case for the trust and property tax increases.

In its first substantial response to the budget, the Council of Small Business Organisations Australia said the changes to CGT and discretionary trusts had severe implications for retirement planning, succession arrangements and business viability.

“Small businesses should not become collateral damage in tax changes that do not reflect the reality of how they operate,” said COSBOA chief executive Skye Cappuccio.

“These are not abstract tax settings for small business owners. These decisions are deeply personal and directly tied to retirement planning, succession planning, family livelihoods and the future of businesses built over generations.”

Teal independent Nicolette Boele wants the government to confine the CGT changes to the property sector.

The teals, like the opposition, are unable to influence the passage of the legislation as the government has a large majority in the lower house and needs only the Greens in the Senate. The Greens’ only concern with the tax changes is that they do not go far enough.

‘Go live in Trumpistan’: Investor blasts rich peers over CGT complaints

Australia’s changes to capital gains tax are gaining the attention of Silicon Valley’s biggest investors, who warn that the country risks making its tech sector less competitive, but Airtree Ventures co-founder Daniel Petre has blasted his rich peers for their greed in quibbling over tax.

Hemant Taneja, the chief executive of San Francisco-based venture capital giant General Catalyst, said the furore over how CGT changes would hit the tech sector showed how difficult it was for countries to compete for the top technology companies that could become future global giants, while also solving broader economic issues.

Venture capital veteran Daniel Petre thinks it is “bullshit” that entrepreneurs will flee Australia over CGT changes. Wolter Peeters

General Catalyst boasts $US43 billion ($60 billion) in assets under management, including big stakes in artificial intelligence giant Anthropic and Australian tech star Canva.

Taneja is in Australia for a short visit. He said his home city of Boston had tried to become a major centre for tech companies but failed because San Francisco had more accommodating laws, and Australia now risked losing its best companies for the same reason.

“We’re heavily focused on Silicon Valley, but we also invest in other ecosystems in New York, Boston, London, Berlin and Bangalore … it means you want to see these entrepreneurial ecosystems emerge everywhere,” Taneja said.

“A lot of our focus has to be on what conditions are required for people to create the next Canva or Atlassian … so along with the talent and mentorship, you want to create economic conditions that people want to build here.

“There is nuance with how this touches property prices, but you have to question the complexity when it comes to the innovation ecosystem.”

Australian tech investors and successful founders have been among the loudest voices opposing changes to the CGT rules announced by Treasurer Jim Chalmers in last week’s federal budget.

An end to the 50 per cent CGT discount has left company founders and employees facing the prospect of paying 47 per cent tax if their company succeeds and is sold, goes public or undertakes secondary share sales.

“This budget is a death knell for aspiration, it’s a death knell for hope and dreams, and it’s a death knell for young Australians,” said Adam Schwab, co-founder and chief executive at Luxury Escapes.

“Every single policy has allowed wealthier, older people to maintain their benefits, whether it’s negative gearing, which gets retained, the superannuation benefits and even the ability to sell a business. If you’re over 55 and you sell a business, it’s basically tax-free.

“This is the worst budget of my lifetime ... created by people who have never owned a business and have only ever had their salaries paid by taxpayers ... this is what happens when you allow people who have no understanding of creating wealth to destroy wealth for others.”

‘Focus on carving out genuine start-ups’

But Airtree Ventures’ Petre, one of Australia’s most successful private technology investors, said he had been horrified by the spectacle of his wealthy peers publicly complaining about paying fair levels of tax.

Petre said changes to the CGT should focus on carving out genuine start-ups, where founders and employees were risking below-average pay and conditions for the prospect of future success, rather than benefiting employees of companies such as Canva and Airwallex, which were already successful and paying good salaries when staff joined.

“I call complete bullshit that founders or employees are saying they are going to move overseas because of tax,” he said.

“You’ve got your kids in school, you’ve got the benefit of Medicare, you’ve got your degrees in Australia, you’ve got your family and friends, and you are leaving for a seedy tax haven because of about 10 to 15 per cent more tax on your shares? Cool the f--- down and take a valium.”

Petre made a good chunk of his early personal wealth when he sold shares in his former employer Microsoft in the late 1990s, and said he had accepted a high tax rate at the time as a fair price to pay.

He said consultation in the industry was required to work out whether start-up exemptions should be based on company age or valuation. Consideration could also be given to how long a private business had been operating before the founders made an exit in a big-money deal.

Petre said it was “tone deaf” for already wealthy technology investors and entrepreneurs to be so vocally calling for special treatment in a policy designed to make the taxation system fairer for those who had less opportunity to accumulate wealth.

“I’m just so over rich people who’ve made money complaining about tax rates,” Petre said.

“A high net worth adviser told me he was worried because people with $400 million or more were considering domiciling outside of Australia. I say, ‘well f--- them, go on then … go and live in Trumpistan with the Florida retirees or something’.”

‘A problem for every single business’: Labor insider adds to backlash over CGT overhaul

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.

Tech sector tells government how to fix its CGT policy

The lawyer who helped draft Australia’s employee share scheme rules says businesses founded by entrepreneurs with staff should be carved out of new capital gains tax changes, arguing these founders and employees should not be swept up in reforms aimed at tackling intergenerational inequality.

Peter Dunne, the head of corporate development and general counsel at software unicorn SafetyCulture, said early-stage companies would suffer after the removal of the 50 per cent capital gains tax discount.

Peter Dunne says there are ways to change the CGT budget rules to stop the harm to start-ups and small businesses. James Brickwood

Employees often take shares in lieu of competitive salaries and, without changes to the budget measures, small businesses would become less attractive for talented workers, he said.

Dunne previously gained a reputation as the country’s leading legal expert in start-up capital raising for pre-IPO Atlassian, and acted as expert industry adviser alongside Herbert Smith Freehills Kramer head of tax Toby Eggleston on the federal government 2015 changes to rules governing employee share schemes for start-ups.

He said Australia already has legislation governing early-stage venture capital limited partnerships, which grappled with how to define a start-up, so it would not be hard to legislate that employees selling equity earned in these companies would be taxed at a set rate.

He also said, however, that non-tech small businesses should be protected from laws never meant to target them.

“The conversation I’d love to have with Treasury is what if we had a slightly broader formulation of ‘founder’, and anyone who started a business and then who employed people could get a capital gains tax at 23 per cent if they sold their equity in future?” Dunne said.

“Someone said to me that this would also catch business owners like hairdressers or personal trainers, and I think ‘yeah, but what’s wrong with that?’ They are also doing what the country wants and taking the risk of starting businesses.”

Under the measures announced by Treasurer Jim Chalmers last week, the end to the 50 per cent CGT discount left start-up founders and employees facing the prospect of paying 47 per cent tax if their company succeeded and was sold, went public or undertook secondary share sales.

Days of private meetings and public venting from tech industry leaders has left the sector confident of favourable amendments after consultation offered by the government.

Dunne attended a roundtable convened by Independent MP Allegra Spender on Monday, which featured about 20 founders and investors affiliated with the Tech Council of Australia and the Australian Investment Council.

The Tech Council, which is chaired by Atlassian co-founder Scott Farquhar, will hold a series of discussions this week to gather feedback to attempt to influence a policy change.

“We want more of the stories like Atlassian, Canva and Eucalyptus which create well-earned wealth in Australia, that is then re-invested here, but these rule changes make that much harder,” Dunne said.

“It is not overly complex to change this for a sector where indexation to inflation does not work, and people just need clarity about what their future taxation will be.”

Spender said founders were particularly concerned that CGT changes would make it impossible to compete with larger firms who can offer premium salaries for top talent.

She said feedback from industry suggested entrepreneurs believed the government was genuine in its attempts to rectify unintended harm to the sector.

“Tax reform is difficult but essential. Our current tax system is unfair and unsustainable. It relies too heavily on taxing the income of young workers and they are a shrinking proportion of our population so we know that can’t continue,” Spender said.

Dave Slutzkin, the co-founder and chief executive of artificial intelligence coding start-up Cadence, said employees were the hardest hit by the CGT changes. He said their main financial motivation for working with companies like his was to benefit from an employee share scheme if the company is a big success.

“These smart, driven people take a huge amount of risk to join a business trying to make the world better. But the tax consequences of that are completely uncontrollable for them, especially because they very likely can’t sell their shares immediately after a value event to pay the tax bill,” he said.

“I know people who have ended up hundreds of thousands in a hole simply because they joined early and worked hard. These CGT changes make that worse because the bill increases, and it does nothing about liquidity alignment.”

Chief executive of start-up investment group Aussie Angels Cheryl Mack said while the CGT changes were framed as targeting wealth, it would disproportionately impact the people taking the biggest risks in the economy.

She said without changes fewer people would choose to start companies in Australia, join start-ups or invest in them.

“The reality is that most angel investors in Australia are not ultra-wealthy billionaires. They’re operators, founders, and professionals investing their own savings into early-stage companies that create jobs, innovation, and future economic growth,” Mack said.

Tech crowd expects CGT win as some cringe at billionaire complaints

Days of private meetings and public venting has left the tech sector’s leaders confident of favourable amendments after shock and anger in the industry over the budget’s changes to capital gains tax rules.

Public comments warning of an impending exodus of the country’s best founders were matched by softer diplomacy, quietly led from Sydney by Atlassian billionaire and Tech Council chairman Scott Farquhar.

Scott Farquhar and Paul Bassat have led tech sector pushback against CGT changes applying to start-ups, whereas founders Max Marchione and Francis Vierboom say others in society need the money more. Bethany Rae

Farquhar stayed in Sydney and let the lobby group’s new chief executive, Kate Cornick, tread the parliamentary corridors for meetings with Treasury officials, and confidence is now high that pending consultations will lead to some form of exemption for start-ups.

Venture capital giant Paul Bassat of Square Peg Capital said the plans to end the 50 per cent CGT discount in favour of a model linked to inflation were “disastrous”.

But a divide in the sector has also emerged in social media threads where – usually younger – founders questioned whether it was fair to give the technology industry special treatment.

“I don’t think Treasury had actually understood that this was going to be a problem for founders and have been receptive to ways to solve it,” said one source with knowledge of the negotiations, who requested anonymity to speak freely.

“I think people felt pretty fine about the 27 per cent with a potential index into 30, but a potentially 47 per cent tax for a start-up would mean you really should move overseas,” said the source on Friday.

While the tech industry has become close to Assistant Technology Minister Andrew Charlton through its lobbying on artificial intelligence laws, it has largely been dealing with Treasury on CGT.

Those close to the negotiations said the government had not committed to any carve-outs yet; instead, Treasury would look at case study examples and come back with proposals.

“Do you do a carve-out for Australian businesses up to $300 million, or is it $10 million? These are options that will come after Treasury modelling,” said one industry participant.

“Labor is sensitive to media and social media backlash, so it may be expedited, but this isn’t normally a quick process that will be resolved tomorrow.”

Some of the more creative social media backlash has come at the initiation of Frank Greeff, an entrepreneur who sold his real estate marketing company Realbase to Domain for $180 million in 2022.

Greeff took to Instagram, posting a photo of himself with an AI-generated rendering of Prime Minister Anthony Albanese, introducing him as his new co-founder who would get 47 per cent of the company.

https://www.instagram.com/p/DYTHIIkGEcy/?img_index=1

He was joined by numerous other founders creating images, casting the government as a new partner taking an outsized percentage of profit from their risk and hard work.

Appearing alongside the prime minister at a media doorstop on Friday morning, Treasurer Jim Chalmers said there had been numerous new incentives for start-ups and venture capital in the tech sector in the budget.

“We had already been engaging with the tech sector, in particular, with the [venture capital] and start-up sector, to make sure that the changes accurately reflect the contribution that we seek from that really important part of the economy,” said Chalmers.

“I’m not going to pre-empt that consultation … I’ve done some of that consultation myself, the Treasury as well, and we’ll make sure that we get it right.”

https://www.instagram.com/p/DYTlMoHTH7l/

Finnlay Morcombe moved to San Francisco last year after convincing some well-known Silicon Valley investors to back his two-year-old start-up,  Fluency (his co-founder is still in Australia).

Morcombe said it was not hyperbole to suggest that CGT changes would cause other Australian start-ups to relocate.

“People are irrational largely, but it’s fairly easy to predict behaviour when it comes to money,” he said.

“Australia was less CGT than California – now it is more. So while our last capital raise was into an Australian holding company, rational self-interest means flipping to the US makes much more sense.

“It won’t kill the Australian sector, but it will maim it … it seems short-sighted, so hopefully there will be some clawback for founders.”

Australian venture capital firm Galileo Ventures has opened a San Francisco office to support portfolio companies that move to the United States.

Its general partner, James Alexander, said a major, but unspecified, portfolio company had already accelerated its departure to the US as a result of uncertainty over CGT treatment.

“This is the exact opposite of what we want,” said Alexander.

“The Australian tech sector is one of the fastest growing globally and the main driver of economic productivity.

“Destroying the incentive to build from Australia will reverse the past two decades of progress in a matter of days.”

A different view

However, some start-up founders still building their companies hold a contrary view, as do others who have already made their fortunes, who are embarrassed to see their wealthy peers publicly arguing for favourable tax treatment.

Most agree that having more punitive tax rules than rival economies will harm the start-up scene, but some also concede this is necessary to build a fairer society.

“This CGT thing obviously is net worse for me and my friends, but I do think it’s net better for the country, so it probably makes sense,” said San Francisco-based Young Rich Lister Max Marchione, the co-founder of health tech start-up Superpower.

He is not alone, and other successful founders took their contrarian view on the CGT laws to LinkedIn, venture capital’s online heartland.

Dan Nolan, who sold his start-up Magic Brief to Canva last year, said it would be unfair to carve out tech start-ups and treat them as different to business owners in other sectors, who took just as much risk to start their own companies.

“Just because you build a ‘software or technical business’ doesn’t make you a harder worker than a tradie or someone who starts a cafe,” said Nolan.

“These are people who employ people in this country, do valuable work and should be rewarded for risk.

“Unsexy work [that] serves coffee, plumbs drains, drives people home after a night out – why do they deserve less of an upside because they’re not doing it on the computer?”

Francis Vierboom said he had “benefited a great deal” from lower-taxed assets when he sold a large portion of his shares in start-up Propeller Aero, and had set up a trust to further save money on tax.

However, he said the budget changes were fairer, and could make home ownership more equitable.

“It’s good for Australia to start new businesses, but that doesn’t mean I think it’s particularly obvious that I should have paid a lower tax rate on the money I made from that, than someone who earned their money being a teacher or a doctor,” said Vierboom.

“And it’s great to see the nauseating trust loophole basically end.”

Less than 40 per cent of capital gains earned by individuals come from property, undermining the Albanese government’s claim that cutting the tax break for all assets will help young home buyers, as investors urge Labor to restrict the changes to unproductive house flipping.

A bit over 60 per cent of capital gains for individuals come from ASX-listed shares, managed funds, trusts and other assets such as collectables, according to an analysis of Australian Taxation Office Statistics.

Investors are asking why shares, businesses and other non-property assets are caught up in the capital gains tax overhaul.

Activist investor John Wylie urged the Albanese government to narrow the changes to residential housing, or risk chilling business investment in innovation and jobs. Wylie, founder of Tanarra Capital, said the 50 per cent capital gains discount had been a significant tax incentive for risk-taking entrepreneurs.

“It’s important we have a more nuanced policy between passive investment and lazy house flipping which doesn’t produce new jobs, and investing in real businesses,” Wylie told AFR Weekend on Friday.

“The last thing the government should be doing is discouraging entrepreneurship, risk-taking and new business formation because that’s what creates the industries and jobs of the future for Australia.

“It would be wise for government to rethink this because the pendulum has swung too far.”

Wylie is a prominent businessman and former investment banker, who has previously served as chairman of the Australian Sports Commission and Melbourne Cricket Ground Trust, and president of the State Library of Victoria.

The government’s budget on Tuesday announced it would axe the 50 per cent discount on capital gains for investors in property, shares, established businesses, start-ups and other assets from July 1, 2027, but the changes need to pass parliament before they are enacted.

Treasury said replacing the flat discount with cost-base inflation indexation and taxing real gains at a minimum rate of 30 per cent would ensure different asset classes are taxed more consistently, based on inflation, rates of return and length of ownership. Treasurer Jim Chalmers said it would better align the taxation of capital and labour income.

The government is already considering changes to calculations for how start-ups are taxed on capital gains, after founders and investors warned axing the 50 per cent discount would hit innovation and send entrepreneurs offshore.

Start-ups have a very low or zero cost base, meaning a successful venture can earn extremely high capital gains that would be more punitively taxed at up to 47 per cent under an inflation indexation model, compared with a maximum of 23 per cent at present.

Shadow treasurer Tim Wilson said the tax changes will hurt many aspirational Millennials and Gen Zs investing in shares to help save for a home.

The Financial Services Council said a 25-year-old on the median income investing $10,000 in shares would now pay an additional $7552 in tax over 20 years, with the effective CGT rate rising from 15 per cent to 28.8 per cent under the proposed framework.

Prime Minister Anthony Albanese on Friday continued to sell the CGT and negative gearing changes as a housing policy to help younger buyers.

“Aspiring first home buyers are being locked out of the market by tax breaks that favour property investors,” Albanese told the Chifley Research Centre in Canberra. “The distortions have become entrenched, widening a gap between the generations – and eating-away at aspiration.

“Since 1999, when the changes to capital gains were introduced, house prices have risen by more than 400 per cent.”

Despite the government linking the CGT discount to huge house price growth since the turn of the century, Treasury said in the budget papers that removing it and restricting negative gearing to future new homes would cause prices to decline by only 2 per cent.

“Tax changes have a small one-off effect on prices, which suggests the CGT discount was never a driver of house price growth,” former Treasury senior tax official Geoff Francis said separately.

The Parliamentary Budget Office in a costing released last year said 38 per cent of reported net capital gains relate to residential property. ATO figures analysed by AFR Weekend similarly show the proportion of capital gains coming from property was 39 per cent in 2022-23.

Blake Briggs, chief executive of the FSC which represents fund managers such as AMP, BlackRock and Vanguard, said if the government’s objective is helping young Australians buy their first home, the reforms should be targeted at housing rather than applied across all asset classes.

“The government’s proposed CGT changes have expanded from a housing equity measure into a broad-based tax increase on the almost two-thirds of capital gains that are derived from other asset classes, such as shares and managed funds.

“While framed around intergenerational equity and housing affordability, the changes instead increase the tax burden on Australians investing for their futures through equity markets with the goal of building their long-term financial security.”

”Many younger Australians rely on investments to save for their deposit, and the broad-based tax takes the government further from its policy objective.”

Under Labor’s changes, the capital gains system will switch back to inflation indexation model, that taxes real gains at a minimum rate of 30 per cent.

Opposition Leader Angus Taylor said the changes will hurt many aspirational younger investors.

“He is pulling up the ladder of opportunity for the next generation not only by whacking higher taxes on housing but also on their savings, investments, and small business,” Taylor said in his budget reply speech on Thursday night.

Tax academic Miranda Stewart said the 50 per cent discount was originally aimed at encouraging share investment, but it’s not clear that the new system will tax all investors more.

“The changes could even stimulate equity investment as rental properties become less attractive,” said Stewart, who was previously seconded to Treasury to develop changes for capital taxation.

The introduction of the 50 per cent capital gains tax discount followed a recommendation in the 1999 business tax report for the Howard government by businessman John Ralph, which argued the change would create a nation of shareholders and encourage investors to buy and sell assets more frequently.

But Treasury said the concession had the opposite effect.

Analysis released with the budget found that in the 25 years since the discount was introduced, the share of tax filers declaring dividend income had fallen almost 20 per cent, while the proportion earning rental income from investment properties had risen more than 10 per cent.

Treasury argued that while the 50 per cent discount had been more favourable for investors in existing houses on land since 1999, investors in ASX-listed shares and apartments could have been better off under inflation indexation.

For an investment held for 10 years, Treasury estimated the appropriate discount would have been 36 per cent for houses, 50 per cent for apartment and 56 per cent for Australian shares.

“This means the current CGT discount has the potential to significantly distort investment decisions, incentivising investment in existing houses,” Treasury said.

Peter Bembrick, a tax partner at accounting firm HLB Mann Judd, said different investors could pay more or less capital gains tax.

“It’s possible some people pay less tax under indexation than the 50 per cent discount.

“But the real kicker is the minimum 30 per cent for some people.”

The Albanese government will consider changes to calculations for how start-ups are charged capital gains tax rather than a full exemption, after founders and investors warned axing the 50 per cent capital gains tax discount would hit innovation and send entrepreneurs offshore.

Following fierce backlash from the tech sector led by Atlassian co-founder and Tech Council chairman Scott Farquhar, Treasurer Jim Chalmers agreed to consult on plans to end the 50 per cent capital gains tax discount in favour of a model linked to inflation with a 30 per cent floor.

Farquhar and other tech leaders are urging Chalmers to carve out start-ups from the change, which will come into effect on July 1, next year.

But Labor is reluctant to open the door to exemptions and believes it is right for people who make large gains from capital assets to pay more tax. It is instead looking at how to tweak the cost base calculation to offset some of the big capital gains founders and investors can make.

Assistant Treasurer Daniel Mulino said on Thursday the government was committed to consultation but pointed out start-ups tend to have a small cost base and the capital gains calculation will account for that.

“The start-up industry has validly raised a concern that often they have a very low or zero cost base. So, when they look at gains, it will be coming off that very low base. So, we have indicated that we will consult with them to deal with what’s a very special case,” he said.

Cameron Blackwood, head of tax at law firm Corrs Chambers Westgarth, said that approach would not be enough.

“The whole problem with the startup arrangements is that there is no or very low cost base to adjust. That’s why you need a concessional tax rate,” Blackwood said.

“What people were looking for is either to go back to the way it was or to have a concessional tax rate. The better way to help is to provide concession to the upside.”

Technology entrepreneur Bevan Slattery – the founder of ASX-listed data centre giant NextDC, Megaport and SubCo – said the government has failed to grasp the consequences of the budget decision for sovereign capability.

He argued the country is now set to miss out on up to $50 billion in critical infrastructure investment for new data centres, subsea cables and artificial intelligence factories, that are now likely to be foreign owned.

Slattery is building the first subsea cable from Sydney to Los Angeles and said if SubCo was starting the project today it would be near impossible to get local investment under these tax changes.

“Taking away the capital gains tax discount essentially takes away our sovereign capability. Data centres will still get built, but there is no incentive for Australians to own them or to take risks in backing our critical infrastructure when they could choose a mature global organisation like Google to invest in instead,” Slattery said.

“Do we want our critical infrastructure which houses our connectivity to be foreign owned?”

Slattery called for the 50 per cent discount to be restored for investments in local critical infrastructure such as technology, critical minerals, telecommunications and manufacturing.

Not every chief executive is against the changes. Westpac chief executive Anthony Miller welcomed the changes to the capital gains tax regime which he said was “a big step” to incentivising investors to fund the supply of houses. “They went after how we try and drive productivity in the country which I think is to be commended,” he told ABC Radio.

“I understand the logic of let’s reduce the incentive for investors to buy existing loans and continue to challenge them to buy and build new houses because the key challenge for the country is supply of houses.”

The proposed new CGT model means founders, early employees and venture capital partners will pay higher taxes on their profits when the companies are sold, go public or allow secondary share sales.

The average CGT rate among Organisation for Economic Co-operation and Development developed economies is about 19 per cent, while in Australia, the current maximum CGT rate for assets held longer than 12 months is 23.5 per cent – half the 47 per cent top marginal tax rate for people earning more than $190,000.

Independent MPs from electorates where voters receive the greatest benefit from the capital gains tax discount – an average of $75,324 for each taxpayer in Sydney’s Double Bay – will suffer little electoral pushback from an expected curbing of the tax break, analysts say.

New analysis of CGT benefits shows that four of the 10 postcodes receiving the highest average tax breaks are in eastern Sydney suburbs, including Edgecliff, Woollahra and Vaucluse, all part of independent teal MP Allegra Spender’s Wentworth constituency.

Other postcodes in the top 10 are suburbs around Palm Beach in fellow teal MP Sophie Scamps’ Mackellar, as well as Toorak and Hawksburn in the inner-eastern Kooyong electorate of Monique Ryan, analysis by data firm Cotality for AFR Weekend shows.

But while the extent of the average tax break in these areas was much greater than the national standard – more than 51 times in Double Bay – MPs in those electorates were unlikely to suffer if the benefits were wound back in next week’s federal budget, pollster Kos Samaras said.

The more affluent teal-voting majority that elected the independents in last year’s federal poll was unlikely to change its tune because of the issue, Samaras said.

“Whoever they are voting for has little bearing on what may occur here in terms of policy,” said Samaras, a director of research and polling company Redbridge Group.

“If they have been voting teal, it’s largely because of their social values rather than material.”

But teal independents – including Kate Chaney, whose Perth electorate of Curtin includes the Cottesloe-Claremont area where the average CGT benefit per taxpayer is $9143 a year, or 6.2 times the national average – are not the only ones representing areas with a high CGT discount benefit.

Labor is, too. Two electorates held by the Albanese government – Whitlam in the NSW Southern Highlands and Bennelong in Sydney’s northern suburbs – are also in the top 10, with taxpayers in Mittagong and surrounds getting an average $22,809 benefit (15.5 times the national average) and taxpayers in Lane Cove getting nearly the same, at $21,968, or 15 times the national average.

Whitlam MP Carol Berry and Bennelong MP Jerome Laxale were contacted for comment.

The only Queensland electorate in the top 10 is Wide Bay, which includes affluent suburbs such as Noosa and Sunshine Beach, with an average $23,081 per taxpayer, or 15.7 times the national average. Wide Bay is represented by National Party MP Llew O’Brien, who was also contacted for comment.

What’s coming

Treasury is all but certain to abolish the 50 per cent CGT discount for investments held for more than 12 months and revert to the pre-1999 system of inflation indexation in Tuesday’s budget. Changes to negative gearing are still unclear, but changes to franking credits will not be included.

Overall, the CGT policy saved a total of $23.5 billion, with a national average of $ 1469 for each taxpayer who used the policy to offset capital gains from their property investments, according to the latest available data from 2022-23.

House price gains have rapidly outpaced wage growth, resulting in a major deterioration in conditions for furious generations hoping to enter the property market in the last five years.

“Where the benefit really sits, it’s with the people with the highest net worth who are able to invest most heavily in these types of properties [at the top end of the market] and generate the benefit as a result of it,” Cotality head of research Gerard Burg said.

Individuals in NSW gained the most from the tax discount at an average of $1972 per taxpayer, followed by Victoria ($1444), Queensland ($1257), Western Australia ($1140), ACT ($1112), South Australia ($906), Tasmania ($708) and Northern Territory ($448).

“NSW has the largest benefit, and it’s disproportionate to the number of taxpayers. It comes down to the profit on the sale, when properties were purchased and when they’re sold,” Burg said.

Teal MPs say their voters are more concerned about the intergenerational property-wealth imbalance than about the tax break they stand to lose.

“There are a variety of views in the electorate, but many people who might pay more tax if the CGT discount is reduced still support change because they are worried that other people will be left behind [if] changes aren’t made, and if income taxes are cut, will receive benefits in other ways,” Spender told AFR Weekend.

“We have many people in the electorate, such as young professionals, who have good jobs, but are still unable to build financial security or buy a home unless their parents can help them. Most people don’t want us to be a country where you have to rely on your parents.”

In March, Spender proposed cutting income tax for typical full-time workers by $1600 a year, funded by higher levies on capital gains, trusts and phasing out negative gearing.

Scamps and Chaney echoed the sentiment that their voters would be hit the hardest by a reduction in property tax concessions and said their voters were more concerned about how younger generations will afford housing, as mums and dads aren’t the ones receiving the major benefits.

Independent Kooyong MP Monique Ryan said a survey of 900 people in her electorate found 73 per cent backed CGT changes and 85 per cent wanted changes to negative gearing.

“There’s strong community sentiment that the government must rein in the tax incentives that have supercharged our housing market and locked young people out of owning their own homes,” Ryan said.

Surveys by Redbridge show Gen Z and Millennials, who will make up 50 per cent of voters by the time the 2028 federal election is due, rate housing affordability and cost of living as the biggest issues, often viewing them as the same.

The CGT changes that now appear inevitable wouldn’t put the Labor government in the position of breaking any election promises, in the way it was slammed for changing course over the former Coalition’s planned stage 3 tax cuts for higher earners in 2024.

In the run-up to last year’s election, Anthony Albanese’s government avoided any pledge not to touch the tax break, while neglecting to mention plans it was hatching around that very policy.

But it is counting on winning points for tackling the pressing issue of intergenerational equality – most clearly seen in access to the housing market – to overcome any criticism that it is being shifty on policy.

When asked whether the government cared about integrity, Chalmers said this week that it would build trust by making a case for the changes.

“There are genuine intergenerational concerns and pressures in our budget, in our tax system, in our housing market and in our economy more broadly,” he said.

“A government like ours, a responsible government, cannot ignore the very real pressures and concerns that people have in our communities.”