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Only applying changes to the CGT discount and negative gearing rules to new investments would “severely delay” desperately needed reforms required to repair a “structurally flawed” budget and boost the economy, Deloitte says.

The consulting firm estimated that a policy which cut the 50% capital gains tax discount to 33% and abolished negative gearing would only generate $500m over the first four years of operation if existing investments were not included – an approach known as “grandfathering”.

Phasing in the new tax settings for all existing investors over three years, in contrast, would boost the budget by a substantially larger $18.8bn over the first four years - money which Stephen Smith, a lead partner at Deloitte Access Economics, said could be used to pay for income tax cuts for Australian workers.

The additional revenue could, for example, fund a 1 percentage point cut to the lowest marginal tax rate that would give an additional $500 back to a worker earning $45,000 a year.

Alternatively, the nearly $19bn generated from scaling back investor tax breaks could fund more “wholesale” and productivity-enhancing income tax reform.

One such reform would be a near doubling in the tax-free threshold to $35,000, then a flat 33% tax rate on income up to $300,000 followed by a higher 40% rate for income over that.

“A tax-free threshold of $35,000 would greatly improve (though not solve) the incentives for low-income and part-time workers to take on additional work,” the report said.

Jim Chalmers this week warned that mooted changes to investor tax breaks would not generate “a huge amount of revenue” over the coming few years.

The treasurer said in any policy change Labor made, he wanted to “make sure that we recognise the decisions that people have taken in the past” and pointed to “transitional” arrangements that may mean new tax settings would apply to future gains on assets held at the time of the rule change.

Smith said there were principled arguments why investors who had made investments in long-term assets should be shielded from tax changes, saying it was a “politically palatable approach”.

“The transition is really important. I don’t think it would make sense to say, ‘Things are changing right now, and too bad’ - that would cause unnecessary dislocation.

“But we do think you can have a transition period that allows people to make adjustments to their asset holdings so they can organise their affairs. To be blunt, if it doesn’t work for you after you lose the 50% CGT discount, then you can sell your asset before that takes effect.”

Deloitte’s annual pre-budget analysis predicted smaller than previously estimated deficits as higher commodity prices and inflation boosted company profits over this year and the next.

Savings from Labor’s NDIS reforms would then deliver a further benefit across following years, Smith said, though he described the budget as “structurally flawed”.

“The big question is what they do with the money. There’s every chance the government chooses to ‘reprioritise’ that money into something else, like more fuel security.

“The changes to the NDIS are material and important and good. But the budget is all about net savings, so what they do with that money will determine what happens to the budget bottom line.”