Senate inquiry launched into Labor’s controversial CGT reforms

Labor’s controversial capital gains tax (CGT) changes will face a Senate inquiry next month as the government races to pass the reforms before July 1.

The inquiry comes as Labor faces growing backlash from startups, investors and major business groups. The Opposition has argued these changes were never taken to the electorate during the 2025 federal election campaign.

Treasurer Jim Chalmers introduced the legislation to the House of Representatives on Thursday morning, with the government hoping to secure passage before the measures are due to begin at the start of the new financial year.

The bill bundles together all four major elements of Labor’s tax package, including changes to CGT concessions and negative gearing, alongside a $250 worker tax offset and a new $1,000 instant tax deduction.

Labor’s proposed reforms would replace the existing 50% CGT discount with an indexation-based model, which it says is designed to reduce incentives for speculative investment and improve housing affordability.

But the government’s decision to apply the changes beyond property and across assets, including shares and businesses, has triggered growing concern from the startup sector and broader business community.

Founders, investors, and industry groups have warned the changes could unintentionally hit startup equity structures, founder exits, and investment into high-growth businesses.

Unlike property investors, startup founders often realise gains after years of low or no salary, making capital gains treatment particularly important to early-stage equity incentives.

The government has acknowledged concerns from the startup sector and says it is consulting with industry groups on potential carve-outs or amendments. Supplementary material in the budget papers also proposed a consultation period.

Assistant Treasurer Daniel Mulino defended the accelerated timeline on Thursday morning, describing the legislation as an “overarching framework” that would provide certainty while consultation continued on specific issues.

The Business Council of Australia has now joined the growing list of critics calling for a more comprehensive inquiry process and urging the government to confine the changes to housing rather than applying them across business and investment assets.

The Australian Chamber of Commerce and Industry has also warned the reforms risk discouraging business investment and damaging productivity.

Inquiry adds pressure to already-heated tax fight

As reported by the Sydney Morning Herald, the legislation was automatically referred to a Senate committee. This was due to a motion passed earlier this month requiring time-critical legislation commencing ahead of July 1 to undergo committee scrutiny.

The inquiry is due to report back by June 22, giving the government less than two weeks to pass the legislation before the start date for the reforms.

The Coalition has used the compressed timeline to argue Labor is attempting to push through major tax changes without adequate consultation or a clear electoral mandate.

Shadow Treasurer Angus Taylor described the reforms as “toxic taxes”, while Nationals leader Matt Canavan called for a fresh election to give voters a say on the changes.

“We believe that an election should be called because the Australian people should not only get a choice on these taxes, they should have a choice on a different plan for our country,” Canavan said on Thursday.

The Coalition had also threatened to withhold support for Labor’s National Disability Insurance Scheme (NDIS) legislation unless the tax bill was sent to an inquiry, increasing the political stakes around the government’s broader budget agenda.

While business groups and the Coalition argue the reforms go too far, the Greens are preparing to use the inquiry to pressure Labor from the opposite direction.

Greens economic justice spokesman Nick McKim said the inquiry would examine why Labor had chosen to grandfather existing property investment arrangements, allowing current investors to retain existing concessions.

The Greens are still expected to support the legislation in the Senate, but the inquiry gives the party additional leverage as negotiations continue over the final shape of the reforms.

The backlash has also reportedly fuelled concern within Labor’s own caucus, with MPs increasingly nervous about the reaction from business owners and investors in their electorates.

Chalmers defended the broader approach to the reforms during a closed-door meeting on Thursday, arguing it would reduce distortions across the tax system rather than simply shifting investment activity from one asset class to another.

“It doesn’t make a lot of sense to replace one big distortion with another big distortion,” he reportedly told MPs.

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