Albanese defuses his tax grenades, but does the backflip go far enough?

Are the federal government’s new carve-outs to its deeply unpopular capital gains tax the backflip you are having when you’re not having a backflip? That’s a solid yes.

Just to be clear, the wind-back of the controversial tax hikes will cost the government $475 million over four years, out of the $8.1 billion in extra revenue it expected to raise from its changes to the taxation of capital gains, negative gearing and discretionary trusts.

As concessions go, this isn’t one to get excited about – but it is the concession that the government had to have.

Business groups like the Australian Chamber of Commerce and Industry reckon that the size of the concessions relative to the government revenue bonanza tells the story.

The ink was barely dry on the May budget when the depth of broad-based disdain for the abolition of capital gains concessions on a broad sweep of assets became abundantly clear, and potentially problematic for the government.

The pressure on Prime Minister Anthony Albanese and Treasurer Jim Chalmers was immediately evident, and became increasingly palpable as the backlash against the tax policy refused to die down.

Sure, the criticism of the capital gains tax changes from some quarters was self-serving, but there were also legitimate practical and philosophical reasons to object to aspects of the policy.

The government’s new concessions are designed to address three of the largest hot spots: Taxing small business owners when they sell their business, taxing innovation, which decapitates entrepreneurialism, and taxing testamentary trusts, which opponents described as the equivalent of a death tax.

Picking a fight with small business is political suicide. Even big businesses will defend small businesses. This is the workhorse sector of our economy, rather than the financial elite – the sector employs more than four in 10 Australians.

The government fiscally confiscating half of the value created by a small business owners created shocking optics, and was poor policy.

So its decision to widen the definition of what constitutes a small business – from one with revenue of $2 million to one with $10 million – makes sense as it captures 2.7 million small businesses.

But not all companies with $10 million in annual sales make millions in profits. Defining tax on businesses by sales is blunt policy.

Whether Thursday’s concessions go far enough to completely patch the wounds with small business remains to be seen, but fixing the impost on a large portion of the small business community without significant cost to the government’s revenue c