Treasurer Jim Chalmers has delivered a Federal Budget he says is ambitious in the face of adversity. Photo: Screenshot.
A tax offset bonus for workers and some serious pain for property investors are two big take-homes from the 2026 Federal Budget.
Residential property investors are a clear target of this budget, with capital gains tax and negative gearing arrangements being significantly reformed to help younger Australians get into home ownership while also improving government revenue.
From 1 July 2027, negative gearing for residential property investments will be limited to new builds; and the 50 per cent CGT discount will be replaced with cost base indexation and a 30 per cent minimum tax rate on capital gains.
The negative gearing changes won’t apply to properties held before tonight’s budget was delivered – that is, before precisely 7:30 pm AEST 12 May 2026 – and the CGT reforms will only apply to gains accruing after 1 July 2027.
In handing down his fifth budget, Treasurer Jim Chalmers said the measures would help level the playing field for first home buyers, preserve the gains investors have made, and support investment in new housing supply.
The changes aim to get 75,000 more Australians into their own homes.
“This will help rebalance a system which is more generous to assets than it is to labour, and help rebalance a system where house prices have decoupled from incomes,” Dr Chalmers said.
“Since 1999, house prices have risen over 400 per cent, more than twice as fast as average incomes.”
Investors buying new builds will be able to choose either the 50 per cent CGT discount or indexation and the minimum tax when they sell the property. Indexation will be calculated using the Consumer Price Index.
The Federal Government will also introduce a minimum tax of 30 per cent on discretionary trusts from 1 July 2028 (with some exceptions), to help create more equal treatment between workers who earn a living from wages and people with income from trusts.
The Treasurer said while there are many legitimate reasons to use discretionary trusts, the number has doubled over the past 20 years, which is faster than the growth in the number of companies and is making the system unsustainable.
Rollover relief will be provided for three years from 1 July 2027 to assist small businesses and others wishing to restructure.
The new measure will also help fund a $250 tax offset for every working Australian taxpayer.
Called the Working Australians Tax Offset (WATO), it will be a permanent, annual tax offset of up to $250 from the 2027–28 income year for all Australian workers.
That is in addition to the three rounds of tax cuts that have been rolling out since the 2024 Budget.
The WATO will provide a tax cut for more than 13 million Australian workers for income derived from work.
This Federal Budget was framed under the cloud of the global fuel crisis sparked by the Middle East war and, in the Treasurer’s own words, “isn’t exactly the same budget we would have handed down in February, for obvious reasons” but is one of “ambition in the face of adversity”.
A fuel security plan in the budget comprises a list of previously announced measures aimed at shoring up supplies and future-proofing energy needs.
The budget’s balance sheet isn’t pretty, however.
The forecast gross debt will peak at $1.05 trillion in 2026-27 and net debt at $616.6 billion.
The 2026-27 deficit is forecast to be $31.5 billion, which is $2.8b better than December’s MYEFO predicted, and places the budget at $44.9 billion stronger over the forward estimates than at the mid-year update.
Yet the budget is not forecast to return to balance until 2034-35 and not be back in surplus until 2036-37.
This budget has found $63.8 billion in savings, which is the largest savings package on record.
Also for the first time on record, consecutive budget updates have returned every single dollar of revenue upgrade to the bottom line.
Savings were found across all portfolios of government, with the biggest whack coming from a massive restructure of the NDIS that will cast 160,000 users from the service.
Another $2.7 billion in savings by 2029-30 from the Australian Public Service has been found through forcing a reduction in spending on external labour and non-wage expenses such as travel, hospitality and property.
Grabbing unallocated funding across APS agencies has helped with “reprioritisations”.
In the Agriculture Department alone, savings of $191.6 million over five years from 2025–26, and $30.5 million per year ongoing, across the portfolio will be found by reducing funding to a number of grant programs.
Savings will be redirected to other government policy priorities in the Agriculture, Fisheries and Forestry portfolio.
Treasury’s central forecast for inflation is that it will peak at about five per cent a year in the middle of the year, based on the global oil price staying around $100 a barrel until the end of June and falling below $80 by 30 June 30 2027.
But there is also Treasury modelling in which oil could reach $200 a barrel.
The budget is big on productivity initiatives (mostly already announced) aimed at attracting more investment to Australia, making development application approval processes simpler, and cutting down compliance costs for business.
Original Article published by Chris Johnson on Region Canberra.
