Anthony Albanese has laughed off an AI-generated meme campaign against capital gains tax changes from startup founders, thanking them for “very flattering” doctored photos of him working in their businesses.

But independent politicians representing some of Australia’s startup hotspots have raised alarm over the proposed increase to capital gains tax, warning the tax changes could see innovative companies and tech firms move overseas to chase higher rewards.

“The government needs to do the deep consultation required to get this policy right so any changes don’t drive investment offshore. We need to retain maximum sovereign innovative capability and retain economic benefit here in Australia,” said ACT senator David Pocock.

Last week’s federal budget proposed to change CGT – replacing the 50% tax discount on profits with “cost-base indexation”, meaning tax on profits after inflation, and a minimum 30% tax rate – which would affect profits on selling properties, shares and other assets.

Guardian Australia first reported on the AI-generated photos of Albanese being mockingly posted by tech startups and business owners, in protest of the proposed CGT changes. Entrepreneurs and the tech sector have warned that increased taxes could push people away from working for new businesses or send startups overseas.

Early-stage companies with little cashflow often offer employees equity in the company or stock options in lieu of higher pay, while founders can be motivated to take risks with new ventures by a large potential payday when they sell their companies.

The treasurer, Jim Chalmers, has said the government is still consulting on the changes, not denying there may be a carveout or special treatment for new businesses.

Wentworth MP Allegra Spender, Kooyong MP Monique Ryan, Mackellar MP Sophie Scamps and Canberra-based senator Pocock all backed the government’s broader moves on tax, negative gearing and CGT, but warned the application of the CGT changes to the startup sector specifically could be counterproductive.

“The government should be consulting widely – it is with the tech sector and needs to go further with business owners, fund managers and the broader community,” Spender said, calling on the government to take time to “get the balance right”.

“Tax reform is hard. It needs to balance prosperity and fairness and get that balance right.”

Spender held a roundtable discussion with startup founders in her eastern Sydney electorate on Monday, and plans to relay their concerns to government. She suggested revenue raised from CGT changes should be returned to Australians as income tax cuts.

Ryan, whose electorate is in inner Melbourne, suggested company founders, early employees and investors should get discounted or concessional rates of CGT.

“I’ve heard from constituents with startups, and from younger investors, that these changes could have a chilling effect on investment on new and small businesses – which is where we need to be putting our support,” she said.

“If we want Australians building businesses here, we can’t make Australia one of the worst places in the developed world to realise a capital gain.”

Pocock called the ACT “the startup capital” of Australia, and has written to Chalmers urging a rethink of the proposal. In a letter, he suggested the government should even strengthen favourable treatment for founder equity, employee share programs and venture capital.

“In the same way the government is using tax settings to stimulate housing supply, they should be used to stimulate investment in startups and the innovation we need as a country to solve challenges and diversify our economy,” Pocock told Guardian Australia, warning about “unintended consequences” from the changes.

Scamps was concerned that entrepreneurs in her Sydney electorate would move offshore, warning the proposed CGT changes “could undermine start-ups and small businesses”.

“We cannot afford to send a generation of Australian entrepreneurs overseas because our tax settings are no longer internationally competitive. If founders and investors leave, Australia loses jobs, innovation and future industries,” she said.

The government has downplayed the AI-generated memes mocking the changes, but the online trend has grown over the weekend, with new AI-generated photos depicting Albanese as a tradesman, hairdresser and underwear salesman. The trend was started by Julian Fayad, CEO of loan comparison platform LoanOptions.ai and a former candidate for Clive Palmer’s United Australia party in 2022, who joined shadow treasurer Tim Wilson at a startup roundtable on Sunday.

Chalmers shrugged off the campaign, saying: “we’re not changing the 47% marginal rate that’s been referred to in those memes.” He also noted “generous” concessions for small business would remain.

Albanese said consultation would continue until relevant legislation was introduced into parliament in coming weeks, saying the government wanted to support startups and venture capital. Asked about the memes in a radio interview, he said the government wanted “no disadvantage” to that sector.

“I have seen some of the memes which are there and the memes are very flattering, I must say, some of them. So, thank you to those who’ve made me look rather good.”

The Tech Council of Australia said it was confident that the government “appreciates the conditions and challenges entrepreneurs face” and it wanted to “make this case” on the final CGT settings.

“The value created by early stage companies is almost entirely new value, built from risk, talent and conviction. Australia’s venture and tax settings need to reflect that,” the group said.

“We welcome the opportunity to continue this work and ensure the final settings support the flow of risk capital and skilled talent into early stage Australian companies.”