Labor MPs have been handed a seven-point cheat sheet to tackle prickly questions over the government's broken promises as they scramble to defend a backflip on negative gearing and capital gains tax in this year's Budget.

Just hours before Treasurer Jim Chalmers delivers his fifth budget, the internal talking points, obtained by The Australian, instruct government MPs to defend the shift by insisting Labor is doing 'the right thing with the right policies at the right time'.

The cheat sheet also frames Tuesday's budget as a responsible one, focused on measures to address intergenerational inequity in the housing market.

'Young people, and their parents and grandparents are worried they will never own their own home,' the sheet of talking points reads. 

'They are frustrated with the intergeneration all (sic) equity.'

'Any responsible government must take these issues seriously. We have focused on housing supply, but it's become increasingly clear that we need to use every lever we can to get Australians into homes - to meet our 1.2million new homes target.'

The cheat sheet also advises MPs to promote spending promises on roads, water and power required for housing construction across the country to get over the line.

The Albanese government is expected to clamp down on negative gearing, scrap the CGT discount and return to the pre-1999 model of inflation indexation. 

It comes despite the Prime Minister previously insisting that Labor had 'no plans' to wind back property investment incentives.

Negative gearing allows property investors to offset losses - including loan interest and maintenance costs - against their taxable income.

For example, if a landlord earns $45,000 a year in rent from an investment property but spends $60,000 on mortgage interest, council rates, repairs, insurance and maintenance, they are running the property at a $15,000 loss.

Under negative gearing rules, that $15,000 loss can be deducted from their taxable income, reducing the amount of income tax they pay.

Currently, Australians who hold an asset for more than 12 months only have to pay tax on half of the profit made in its sale, under the 50 per cent capital gains tax discount.

For example, if an investor bought a property for $800,000 and later sold it for $1million after owning it for more than a year, they would currently only pay tax on $100,000 of the $200,000 profit.

If the pre-1999 system was reintroduced, the purchase price would be adjusted for inflation before calculating tax.

For example, a property bought for $800,000 and sold for $1million might only have about $80,000 of the gain taxed after indexation rather than $100,000 under the current system.

Housing Industry Association general manager Jocelyn Martin warned scrapping negative gearing would have 'disastrous' consequences for renters during an already dire housing shortage.

'Removing negative gearing, with minimal grandfathering, would lead to a 46,000 reduction in homes built, a loss of over 4,300 construction jobs and a fall in GDP of $2.3billion,' she said.

'Investors finance up to two in every five new homes built - private rental investment is part of the solution to our housing crisis, not part of the problem.

'Australia is in the midst of a housing and rental crisis, with rental vacancy rates across the country barely above 1 per cent.

'Taxing investors who fund the development of more housing only worsens affordability for the renters that depend on these properties.'