The simple question at the heart of the capital gains tax debate: who should pay more tax, minimum-wage workers or wealthy investors?

The debate over the capital gains tax discount comes down to a very simple question: who do you think should pay more income tax?

Should a high-income executive who makes a $400,000 capital gain (that is, a profit) from selling an investment property pay a higher tax rate than a full-time retail worker on minimum wage who decides to pick up a few extra shifts?

If you think the executive should pay a higher rate of tax, well I’m afraid our current tax system disagrees with you.

Right now, the high-income executive paying the top marginal rate will get a 50% discount on the capital gain and end up paying 23.5% on that $400,000.

The retail worker, working full time on the minimum wage of about $50,000 will pay 32% on those extra shifts.

To be clear the executive will end up paying more tax than the retail worker because they are earning hundreds of thousands of dollars compared with the retail workers few extra shifts.

But the progressive income tax system should mean high income earners pay a larger proportion of their income in tax. The principle of our income tax system is the bigger your capacity to pay the bigger the share of your income you should pay.

By halving the amount of tax they pay, the capital gains tax discount distorts and makes a mockery of this principle. It means the lowest paid workers who are trying to get ahead by working some extra shifts end up paying a bigger share of their income in tax than those earning huge incomes while watching their assets go up in value.

If you think that’s outrageous, you’re not alone. There is growing momentum that the insanely generous capital gains tax discount needs to change.

Recent Parliamentary Budget Office figures show that more than 80% of the discount goes to the top 10% of income earners and if that was not bad enough almost 60% goes to the top 1% (those who earn more than $362,900).

That’s $13 billion a year going just to the top one percenters.

And that’s before we even consider the fact that the discount has pushed up house prices and made housing unaffordable.

It is not all doom and gloom. There are rumblings that the next budget coming in May might see some overdue reform. Nothing has been confirmed but at least there is a flicker of light at the end of the tunnel.

But what might this reform look like?

There is no reason that capital gains should get any discount at all. Capital gains should be taxed in exactly the same way as any other form of income.

The capital gains tax discount is a strange anomaly in our tax system. It means that capital gains are taxed at a lower rate to wages. If an asset you own goes up in price you get half of that gain tax free, which is why it’s called a 50% discount. But go out and work for a living and none of your wage gets a discount.

Why are capital gains treated differently? The more cynical might point out this is because the wealthy are the ones that overwhelmingly take advantage of it.

When the Labor Party last proposed changes to the capital gains tax discount in 2019, they couldn’t quite bring themselves to scrap it completely. They proposed reducing the discount from 50% to 25%.

This is a small improvement on the current system. In our example of the executive and the retail worker, the executive would now pay a slightly larger proportion of their capital gain in tax than the retail worker pays on the extra shifts.

The retail worker would continue to pay 32% but the executive’s proportion would increase to about 35%. That is barely more than the retail worker but at least we’re no longer in the crazy situation of seeing minimum wage workers paying a larger share of tax on their extra hours than those on the highest incomes earn from capital gains.

Another rumour that is more worrying is that they will only reduce the discount to 33%. This might seem like an improvement on the current system, but it is tiny – so tiny that it would mean the executive would continue to pay less than the retail worker.

The retail worker continues to pay 32% on the extra shifts, while the executive’s proportion is lower than the retail worker at 31.5%.

The Government needs to answer a simple but fundamental question. Who should pay more tax on their extra income, those on the lowest wages, or those with the most? It’s over to you Prime Minister.