Paul Keating has urged Labor to stick to its guns on controversial changes to capital gains tax, warning that exempting commercial assets from the changes would further “distort” the economy.
Small business and the startup sector are fighting the Albanese government over its plans to shift the 50% capital gains tax discount to an inflation-based model, part of a suite of tax reforms announced in this month’s federal budget.
In the lead-up to Labor introducing legislation for the changes to parliament on Thursday, Australia’s 24th prime minister said settings in place since 1999 had badly hurt the productive economy, as financial resources were diverted to housing, particularly established property.
“This had a major and deleterious impact on investment and with it productivity,” Keating told Guardian Australia on Wednesday.
“The government has done the right thing on housing but it is imperative that the CGT change doesn’t create a new and further distortion to the economy by exempting all other assets, particularly commercial ones.
“The shift in capital taxation under the new arrangements is so marginal that no entrepreneurial initiative is likely to be thwarted by it.”
The architect of major economic reforms in the 1980s and 90s, Keating said correcting the balance in taxation between capital and labour should “be and remain the overriding objective of policy, of the new policy”.
The treasurer, Jim Chalmers, has warned that changes introduced by the Howard government overcompensated investment in established housing and under-compensated other kinds of investment.
“We didn’t think it made a lot of sense to replace one big distortion with another kind of distortion,” he said.
But investors and entrepreneurs fiercely oppose the government’s plans, warning they will badly thwart investment and risk taking in the economy.
Lachlan Harris, a former adviser to Kevin Rudd, has led the charge, lobbying government ministers calling on businesses to rise up against the reforms.
“I’ve spoken to a few people in the government this week – MPs, ministers, staffers – and said to all of them privately exactly what I said in the paper publicly: these reforms are bad for every young kid who has a dream of starting a business,” Harris told Guardian Australia.
He said he had been “swamped” by entrepreneurs opposed to the changes after he spoke out against the tax reforms in the Nine newspapers last week.
“All week, I’ve been saying the same thing publicly and privately: these reforms are bad for young entrepreneurs,” Harris said. “To any founders reading this story, pick up the phone, speak to the media, and get your voice heard.”
Harris, the son of the founders of supermarket chain Harris Farm, co-founded the Budgie Smugglers swimwear brand and now runs media business Revtech. He worked as an adviser to Rudd when he was prime minister, alongside his friend Andrew Charlton, who is now a federal assistant minister.
Charlton has been one of the few Labor frontbenchers to echo startups’ concerns that the tax reforms could erase their tax discount, as the government moves to rush the new laws through parliament.
The legislation will include the CGT changes, changes to negative gearing rules, a $1,000 standard tax deduction and the new $250-a-year tax offset for workers.
Labor wants the legislation passed before parliament’s winter break in July but the Coalition has pushed back on the timeline, insisting the changes don’t start until July 2027 and do not need to be rushed.
A possible deal between the Greens and the Coalition could lead to Senate inquiries being set up on the tax changes and on spending cuts to the national disability insurance scheme.
The shadow treasurer, Tim Wilson, said the Coalition planned to use “maximum leverage” to scrutinise the plans.
“If the government wants to have a conversation around NDIS changes, then they have to actually allow the Australian people to have their say about their tax changes that they didn’t take to the Australian community, which are now punching down on the small businesses of this country,” he said
The CGT changes – replacing the 50% tax discount on profits with “cost-base indexation”, meaning tax on profits after inflation, and a minimum 30% tax rate – have sparked a social media campaign mocking the prime minister, Anthony Albanese, in AI-generated memes.
Small businesses with revenue below $2m will be exempted from the plans and Albanese this week indicated further carve-outs were possible.
Investors and business groups want further consultation, with the Business Council’s chief executive, Bran Black, warning against a rushed process.
Guardian Australia has been told that some Labor MPs are angry the budget message has drifted away from intergenerational fairness in the housing market amid the opposition to the proposed changes.
