The government is proposing to dump the 50 per cent CGT discount in favour of the pre-1999 inflation indexation system.

The warning about the potential impact on business comes as the Senate begins a two-day inquiry into the tax changes announced in the May budget.

The government is proposing to dump the 50 per cent CGT discount in favour of the pre-1999 inflation indexation system.

Economists have offered qualified support for the government's plans on day one of a Senate inquiry.

Labor is considering including capital gains tax exemptions in the budget legislation it will ram through the Senate in a bid to shut down political blowback.