Looming tax reforms would help make the tax system more equitable, independent economist Saul Eslake said on day one of a snap two-day inquiry into the tax changes on Monday.
While he had reservations about the proposal to replace the 50 per cent discount for capital gains tax with a rate tied to inflation and a 30 per cent minimum and limit negative gearing, Mr Eslake said other criticisms of the changes were unwarranted.
"I'm never one to let the perfect, in my eyes, be the enemy of the good, and I think that the changes that the government has proposed would be an improvement," Mr Eslake told a Senate committee hearing.
The former Treasury economist argued the 30 per cent minimum tax rate on capital gains should be scrapped, the pre-1999 system of income averaging for capital gains be brought back and a carve-out for start-ups should be applied.
While those concerns were legitimate, the government should not yield to others motivated by nothing more than a desire to retain the favourable tax treatment they had received for decades, Mr Eslake said.
Business groups and investors have campaigned stridently against the tax changes, arguing productivity would suffer if start-up founders paid a higher tax rate when they sold their assets.
The Business Council of Australia criticised the inquiry for being too short to adequately examine the changes.
"We've got effectively 22 days of inquiry with respect to these reforms, and yet about a year ago we had nine months of inquiry into the question as to whether or not we should remove nuisance tariffs on mushrooms, yarn and horsehair," council chief executive Bran Black said.
"More time is required in order to consider them properly."
Assistant Treasurer Daniel Mulino said talks were continuing with small businesses on potential concessions to the tax arrangements.
Labor was urged not to succumb to requests for a carve-out by Graeme Samuel, a former chair of the Australian Competition and Consumer Commission and the Australian Chamber of Commerce and Industry.
"Frankly, as a PAYG taxpayer, I'm sick to death of feather-bedding those vested interests that have proved to be powerful under previous governments," he said.
Despite the warnings of capital flight, removing distortions in the tax system could improve productivity, said Peter Varela, a researcher at the Tax and Transfer Policy Institute at ANU.
Michael Brennan, chief executive of independent think tank the e61 Institute and a former Productivity Commission chair, broadly agreed with Dr Varela but said the impacts on productivity would be fairly limited.
Despite scare campaigns amplified by social and traditional media, young people would not notice they were paying more tax, said Matt Grudnoff, senior economist at progressive think tank the Australia Institute.
"They will notice that as their incomes rise every year, housing becomes more and more affordable, and instead of thinking, 'I will never be able to get into housing', they'll start thinking, 'I can see the finish line, I can get there, I can own a home of my own'," he said.
Labor wants the changes passed by July 2, when parliament rises for the winter break, but their passage is not guaranteed.
The coalition opposes the measures and the Greens are yet to indicate whether they will back the reforms through the Senate.
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