The long-time unionist who helped draft many of the Hawke-Keating economic reforms argues the current capital gains tax discount is overly generous and favours wealthier Australians.
"Rich people are comfortable. They live in a tax system which is very, very comfortable", he told a parliamentary inquiry on Monday.
But Mr Kelty said any changes to the policy would amount to just another tax, unless the government used the extra revenue to slash income tax rates.
He argued young people were paying proportionally more tax than older, wealthier generations.
"That's not fair. It's simply not fair," he said.
The discount on capital gains tax, introduced in 1999 by the Howard government, allows for a 50 per cent reduction in the tax on investment properties sold after being owned for a year.
The federal government is tipped to introduce changes to the discount in its May budget but officials are yet to publicly confirm the move.
Mr Kelty has argued the discount should be wound back - possibly to between 20 and 30 per cent - allowing the top tax rate of 45 per cent to be lowered.
"You have a little chance here to make your mark on history of this country," he told the probe into the capital gains tax discount.
"I don't need you to be on my side. I can look after myself... I need you to be on the side of young people," Mr Kelty said.
The former Reserve Bank board member said tax reform wasn't just good policy, but also smart politics.
"Young people do not believe you're on their side," he said.
"And where do they go? They go where they always go. They go to extremity. They go to parties of hate. They go to the parties of division."
The Australian Council of Trade Unions is also advocating for reform, saying the current policy is unfair and restricts the supply of housing.
While the discount was introduced to make capital gains tax more internationally competitive and enable more efficient management of assets, the union said 26 years later, little of this intent had been met.
But the ACTU's claim that reforms would help boost housing supply is disputed by the Grattan Institute, which says the change would only have a modest impact.
While the think tank has advocated for halving the tax discount, it argues the benefits would mainly be to the budget and the broader economy.
