PM admits One Nation's rise influenced decision to overhaul tax system

Prime Minister Anthony Albanese said the government's tax changes would address voter frustrations driving support for One Nation. (ABC News: Matt Roberts)

Prime Minister Anthony Albanese says One Nation's rise was a factor in his decision to reform capital gains tax and negative gearing concessions.

Mr Albanese said government's could not ignore voter frustrations driving more people towards populist parties.

The government continues to defend its tax proposals, which will be scrutinised at a coming Senate inquiry.

The rise of One Nation is partly behind the government's decision to take on tax reform in this year's budget, the prime minister has admitted.

On Friday, Prime Minister Anthony Albanese delivered his economic outlook address to a Sky News Summit in Sydney, reiterating how the government is tackling the challenges it faces.

Among them, the consequences of global oil shocks, stalled business investment, the rise of artificial intelligence and the global shift to clean energy.

Mr Albanese also used the speech to justify the government's recent budget measures to change capital gains tax and negative gearing, a decision that is facing a fierce backlash, particularly among business, and has fuelled a softening housing market.

He explained that the Howard government's changes in 1999 to capital gains tax had turbocharged the property market as an investment vehicle, while this year's budget measures will attempt to correct market distortions and boost supply.

"What we're doing is rebalancing the system so that investment decisions are driven by economic reasons not tax outcomes," he said.

Two questions hang in the air above the now decaying federal budget, like condors waiting for carrion.

But in questions after the speech, Mr Albanese was more candid, admitting it was a political call he had made with One Nation on the rise and a fear that if the government stood still, "the world will go past" it.

"That is in part the context that these decisions are made," he said.

"If people think the economy isn't working for them and they are working their guts out and they're not getting opportunity, I tell you what, they will turn to more simplistic, grievance based politics.

"And that is the context in which my government is saying nuh-nuh, we're going to deliver real change for the better."

In just 12 months, One Nation's popularity has surged from 6 per cent to out-polling Labor in one recent poll, with Redbridge reporting it had a primary vote of 30 per cent to Labor's 28 per cent.

Millennials say they would rather vote for One Nation t