The capital gains tax changes “punish” businesses which create jobs and amount to a “productivity tax”, respected UNSW economist Richard Holden says.

“This is the worst possible plan for a country in need of more jobs, and more economic growth,” Professor Holden said.

“It’s a productivity tax in the middle of a productivity crisis. Unfortunately, that is the perverse logic of a productivity tax, they punish high productivity businesses for doing well, growing fast, and creating more jobs.”

Analysis from the UNSW societal economist, released Sunday, runs the numbers on two hypothetical cleaning businesses started by a husband and wife, and the capital gains paid when those businesses are sold after five years.

Both businesses are started with $450,000, which is the couples’ “life savings”. One low productivity business grows at 3 per cent each year; when it’s sold, the new capital gains tax regime results in a 26.6 per cent tax rate on the sale price.

The second business grows at 15 per cent each year, and when it’s sold the effective tax on the sale is 41.2 per cent.

Under the Albanese government’s changes, the 50 per cent CGT discount introduced in 1999 will be axed and reverted to favouring inflation indexation across all asset classes, including investment properties, shares, and businesses, from July 1, 2027.

There is evidence the current capital gains tax regime has created a generational divide in housing in Australia, including in a Senate inquiry report from March.

The Australian Financial Review reports the government originally intended to limit the CGT reform to housing, but extended it to all asset classes four weeks before budget day on the advice of Treasury.

Released on May 12, the federal budget which up-ended capital gains taxes made a $20,000 small business instant asset write-off permanent, cut unnecessary data requests from financial regulators, and streamlined retail tenancy rules. All construction, occupational health and safety and product safety businesses will also save up to $1600 a year as Australian Standards access fees are scrapped.

Expanded tax incentives for venture capital were also included in the budget, as was a new loss refundability provision for businesses and their previous years’ returns. The government says the ‘productivity package’ suite will save businesses $10.2bn a year.

In Commonwealth Bank’s assessment of the federal budget, analysts say “there are some good measures in the budget aimed at cutting red tape and boosting productivity”.

“These are welcome measures, but together, they won’t materially lift the economy’s speed limit or single-handedly solve the capacity constraints present in the economy that are contributing to inflation.”

Professor Holden describes the “productivity tax” as a “profound oversight”.

“Two identical businesses, delivering the exact same service, one highly productive, the other unproductive, will now face vastly different effective capital gains tax rates,” he said.

In his model, both cleaning businesses are started with $450,000, and both generate $2m revenue and $150,000 profit in their first year with four employees.

The first, less productive business grows at 3 per cent each year, turning a $300,000 profit by year five but adding no more employees. At 3 per cent growth, the business has a $680,000 taxable capital gain when it is sold after five years - for four times the fifth year’s profit. Under the changes the sellers will pay a 26.6 per cent CGT.

The second, more productive business grows at 15 per cent each year. Ending year five with six employees and again sold for four times the fifth year’s profit, those sellers pay 41.2 per cent on their capital gain.

“Both businesses took a risk, grew a business, employed people, and paid tax, and both sold for the same multiple of profit,” Professor Holden said.

“It’s just that business two was more productive. In return for this high productivity, the couple who started business two are punished with a capital gains tax rate more than 55 per cent higher than the owners of business one.

“In other words, the new tax system will now punish businesses more likely to create jobs and economic growth, and reward businesses more likely to shed jobs.”

In spruiking the tax changes, Treasurer Jim Chalmers said the full gambit made progress on 13 of 17 reform areas identified by the Productivity Commission’s inquiries into Australia’s productivity agenda.

Making permanent the $20,000 small business instant asset write-off would save businesses 376,000 hours on their tax returns each year, he said.

“Duplicative, inconsistent or opaque data requests” from government regulators would be slashed, saving businesses $181m each year, Mr Chalmers said.