By Jacob Shteyman in Canberra

A so-called widow tax hidden in the federal government’s budget tax reforms will be removed after Labor reached a deal with the coalition.

In exchange for closing the loophole, which would have caused divorcees and widows to lose negative gearing entitlements on investment properties, the opposition will support Labor’s bill to slash spending on the runaway NDIS.

Treasurer Jim Chalmers announced Labor’s plans to close the loophole weeks earlier, but the government was not planning to introduce it to parliament until later in the year, with consultation on the draft bill not due to end until Friday.

With the NDIS laws marooned in the Senate, the government’s promised budget savings were eroding each day the package was not passed.

Opposition Leader Angus Taylor offered Labor an ultimatum: fast-track the bill amending the widow tax, as well as other fixes to discretionary trust tax and the capital gains tax, and the coalition would support both pieces of legislation through the Senate before parliament retired for the month.

Dr Chalmers said nobody had raised any issues with the draft widow tax legislation in consultation so far, essentially giving it the green light.

“If the opposition’s main ask is that we pass the government’s legislation quicker, then obviously I’m up for that discussion,” he told reporters on Tuesday.

Dr Chalmers initially claimed there was no rush to pass the tranche two reforms because the changes only applied from July 2027.

But pressure ramped up on Labor to move faster on the widow tax fix after independent senator David Pocock revealed he had been contacted by a domestic violence victim who claimed she had been denied financing on a property because of the loophole.

The tax reforms grandfathered negative gearing and capital gains tax concessions for investors who held property before budget night, including for landlords who jointly owned a property with a spouse.

However, if their marriage broke down or their spouse died, they would lose their negative gearing entitlements when the title transferred to their name, under the initial legislation implementing the reforms.

In a joint coalition party room meeting, Mr Taylor said fast-tracking the widow tax fix was a “big win” and vowed to keep fighting to eliminate the rest of Labor’s tax changes.

The Senate is expected to pass the NDIS bill, which is expected to save $37.8 billion by the end of the decade, late on Tuesday.

It will then be sent back to the House of Representatives for final assent on Wednesday.

Meanwhile, the tax changes will be introduced to the House on Tuesday afternoon and could pass the Senate as soon as Wednesday.

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