Jim Chalmers has announced the most ambitious and politically risky tax changes since the Howard era as part of a federal budget that defies the looming economic threat of the Iran war to push Australia along the “hard road to reform”.
Arguing that the Australian public is ready for difficult choices aimed at reviving intergenerational fairness and the collapsing dream of home ownership, the government will scale back tax breaks for landlords by abolishing negative gearing for new investors and replacing the 50% capital gains tax discount with the inflation-linked approach that existed before 1999.
Treasury modelling suggests that the property tax changes will help an extra 75,000 Australians “achieve the dream of home ownership” over the coming decade.
“I think the time is right for these kinds of reforms and for this level of ambition,” the treasurer said.
“Around the Australian community there is an appetite for a government which is prepared to take on some difficult things. It has become increasingly clear to us, for example, that the housing challenge is primarily about supply but it is not exclusively about supply.”
Sign up for the Breaking News Australia emailThe budget also includes the previously announced deep cuts to the national disability insurance scheme, with the “difficult but necessary reform” slated to save $36.2bn over the four-year forward estimates.
The property tax changes that cost Labor two federal elections are now likely to receive an easy passage through parliament, as Anthony Albanese flexes his party’s huge majority in the lower house and a friendly Senate.
The budget also includes tax relief for more than 13 million workers in the form of an automatic $250 “working Australians tax offset” but the relief will be delayed until 2027-28.
This sits alongside a $1,000 instant tax deduction that will deliver an average $205 benefit for 6.2 million people in 2026-27.
The budget includes $2.6bn for the previously announced 26-cent temporary cut to the fuel excise.
But Labor held back from announcing any major new cost-of-living support measures, in a major break from what has been the centrepiece for budgets at the federal and state level since the Covid pandemic began.
Instead, the government preferred to keep its powder dry as the Treasury modelled a worst-case scenario where a doubling in oil prices to US$200 a barrel would drive inflation above 7%, unemployment above 5% and send the economy backwards in the September quarter.
“A lesser government would have used the developments overseas as an excuse to do less, and what we’ve tried to do is accelerate the reform and not just absorb the shock,” Chalmers said.
“In an era where people feel like the system no longer works for them, this budget doesn’t just acknowledge that – it acts on it.
“Tonight we choose the hard road to reform, not the path of least resistance. By responding to the pressure Australians confront today, and fulfilling our obligations and responsibilities to the generations to come.”
Assisted by major upgrades to tax revenues from higher commodity prices and inflation, the budget shows cumulative improvements to the bottom line of $44.9bn over five years compared with the December fiscal update.
But the finances remain firmly in the red, with an estimated deficit of $28.3bn in 2025-26, growing to $34.4bn in 2028-29. The “structural savings” such as the NDIS reforms allow the budget to project a return to surplus in a decade’s time.
The shadow treasurer, Tim Wilson, said the budget brought only higher taxes, more debt and no measures to lift living standards.
He confirmed the Coalition would oppose changes to negative gearing and the capital gains tax discount, but would support the working Australians tax offset (WATO).
“It fails Australia’s future economy and has failed the basic test of restoring honesty, Australia’s security and living standards.
“It pulls the ladder of opportunity up from young Australians before they get their first foot on the rung.”
The Greens look set to drive a hard bargain with Labor, with leader Larissa Waters warning the proposals on negative gearing and capital gains tax did not go far enough.
“Tinkering around the edges of a broken system and spending billions for corporations and the 1%: that will be the legacy of the Albanese-Labor government,” Waters said.
“Labor should have used this budget to claw back the obscene profits of big corporations to pay for the things we all need. Instead they’re leaving $17bn a year in the pockets of big gas corporations.”
The Australian Council of Social Services chief executive, Cassandra Goldie, welcomed moves to improve equity in the tax system but said welfare recipients should receive the new WATO.
“The WATO does not help the more than 4 million people on the lowest incomes in the country who are bearing the brunt of higher unemployment and living costs,” she said.
Independent senator David Pocock said Labor had lacked courage over calls for a 25% gas export tax.
“This budget is such a mixed bag – on the one hand some big reforms on housing that took real political courage, on the other a tragic missed opportunity to set us up for a more prosperous and secure future,” he said.
