Chalmers might keep 50% CGT discount for start-ups as Labor MPs insist budget is winning over young voters

Treasurer Jim Chalmers is looking at letting start-ups keep the 50 per cent capital gains tax discount, as Labor scrambles to contain a rebellion over its budget.

Behind the scenes, Chalmers is locked in talks with business groups and investors who begged Labor not to scrap the Howard-era discount for all assets. They want the new inflation-adjusted model to apply only to residential property — not shares or private companies.

Several sources familiar with the government's thinking say it might let firms that fit the definition of a start-up keep using the old 50 per cent discount. The problem? Cabinet ministers are still working out how to legally define an "innovative start-up". They could borrow criteria from existing start-up programs and employee share schemes.

The carve-out is expected to come alongside other sweeteners: expanding CGT exemptions for businesses with turnovers up to $2 million (and possibly higher), and backing down on testamentary discretionary trusts — a change the Coalition has twisted into a "death tax" scare campaign. Both moves were reported by this masthead last month.

Prime Minister Anthony Albanese wants to announce the changes before a fortnight of parliamentary sittings later this month, after a two-day inquiry into the bill that was widely criticised as rushed. Labor reckons 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.

"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 came and visited, to stop us, tell us how they agree with the tax changes," said Josh Burns, Labor MP for the Melbourne seat of Macnamara and the government's special envoy for housing.

Various polls, including the Resolve Political Monitor, have found Labor's budget was one of the most unpopular in recent history. But some Labor MPs in inner-city marginal seats say the vibe on the ground is different.

Ash Ambihaipahar, MP for the Sydney seat of Barton, said she went to four auctions in one day — including one at Kingsgrove — and first home buyers were more commonly bidding against each other 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."

Bennelong MP Jerome Laxale said there were three groups of opinion 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.

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. At a press conference, he used different language: "Well, I'm just saying people are angry. People are angry. I mean, talk to them. 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 harder to sell the housing message. The government argues its housing budget was designed to equalise the treatment of labour and capital income, and to make housing more affordable.

The government was surprised by the outcry about the CGT tax changes on social media, fanned by young businesspeople. While Labor had anticipated resistance from property investors, the backlash from the start-up community caught them off guard.