In an open letter to the prime minister, 40 business owners aged under 40 say the decision to pare back the 50 per cent discount on capital gains tax will impact every growing company in Australia.
Among the signatories are the co-founders of digital menu platform me&u, satellite imaging company HEO and financial services provider Arbor Group.
"By removing the CGT discount on shares, and replacing it with a cost base indexation scheme, you have clocked us with a massive tax hit and then come up with a replacement that will make things even worse," the open letter says.
The federal government says it is still consulting with the startup sector to ensure the changes don't unfairly impact burgeoning new businesses.
In their letter, the founders say many of them support changes to make it easier for young Australians to buy a home, including removing the capital gains tax discount on housing.
But the government has overreached by also extending the reforms to shares, the letter says.
"The changes to the CGT discount on shares will do nothing to make houses more affordable; all they will achieve is to suck the ambition, drive and hope out of the hearts of young business builders nationwide," it said.
"Rather than back us, you have ambushed us with a massive tax increase, a tax that will hit us, the Australians we hire, and the investors who believe in us, the hardest."
By potentially increasing the tax when people sell shares, the government is making them a less appealing investment, businesses argue.
Small operators have also raised concerns they could take a hit from the tax overhaul, but the treasurer has pushed back on those claims, accusing his opponents of being "intentionally misleading".
"The four existing small business CGT carve outs and concessions are not changing," a spokesman for Jim Chalmers said in a statement.
"The most recent tax data shows nine in 10 small businesses are eligible for CGT concessions, meaning they can pay reduced or zero CGT when they sell their business.
"Any business with annual turnover below $2 million, or below $6 million in assets, will remain eligible for CGT concessions."
Prime Minister Anthony Albanese said the campaign against the changes was being run by "right-wing parties and their allies".
Small businesses generally only pay capital gains tax when they're sold and most were liable for little or none, meaning few would be impacted by the changes, he told ABC Radio.
Shadow treasurer Tim Wilson is due to give his budget reply speech at the National Press Club, where he will promise to work with small businesses on greater protections.
The coalition has pledged to enshrine a single definition for a small business into law and ensure that each new piece of legislation require a small business regulatory impact statement to provide a pathway for feedback.
Mr Wilson said the plan would not impose more regulation but would make life easier for business owners.
"(The policy) is going to make sure that when something impacts small business, they get to have their say," he told reporters.
Nationals leader Matt Canavan will also deliver a speech, arguing at the Rural Press Club the government's new tax settings are a "fundamental breach" of Australians' rights as they undo promises made by the Albanese government.
"The Labor Party has no mandate for these taxes," he will say.
"They should be opposed in the parliament for that reason alone."
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