Stephen Bartos, University of Canberra

This year’s budget combines fiscal policy – taxes and spending – with a heavy focus on better regulation.

The budget deficit has fallen slightly from the mid-year update in December, to A$31.5 billion, but the budget remains firmly in deficit for the foreseeable future.

Tax reform

There are important reforms to capital gains tax, negative gearing and trusts. While the reforms are significant, the timing is cautious.

The capital gains tax discount – which currently halves the tax on gains made from buying and later selling assets – has made housing less affordable. Pre-budget rumours correctly predicted the time was ripe for this Howard-era policy to be reformed.

The discount will be abolished, replaced by an inflation adjustment for assets held for more than 12 months, with a 30% minimum tax on net capital gains. Changes will only apply to capital gains arising on or after July 1 2027, more than a year away.

The government will also limit negative gearing for residential property to new builds. This, too, will take effect from July 1 2027. The delayed start to the measures means revenue gains only kick in from 2028-29. But they are large, starting at $1.35 billion, rising to $2.28 billion the year after.

In the long term, these changes will help make housing more affordable and the budget more sustainable.

When asked in his budget lockup media conference whether this was a broken promise, Treasurer Jim Chalmers said not acting would have been easy – “easy but wrong”. Reforms will help housing access, particularly for young people. “I acknowledge this is a controversial change,” he said.

A raft of changes

Even larger in budget impact, but more delayed, are changes to trusts. A minimum 30% tax on discretionary trusts is being introduced from July 1 2028. The long transition period is for “small businesses and others that wish to restructure”.

Exceptions include superannuation funds, disability trusts, deceased estates and charitable trusts. Even so the measure is estimated to raise some $4.47 billion in 2029-30.

There is a raft of other measures to cut taxes, mostly small in budget impact and aimed at helping business. They include extending the instant asset write-off for small business, tax refunds on previous losses for small start-up companies, and expanded venture capital tax incentives.

For individuals there is a tax cut, the “Working Australians Tax Offset”, of up to $250 a year. The budget also re-announces a measure from the mid-year budget update, which allows instant tax deductions for expenses up to $1,000 for work-related expenses.

The fringe benefits tax deduction for electric vehicles is being reduced – another tax change with a long phase-in period. It starts small, in fact costing the budget $10 million in the first year, but grows to improve revenue by $1.57 billion in 2029-30.

Spending cuts

There are previously announced savings in the National Disability Insurance Scheme ($23.9 billion compared with the mid-year update, and $37.8 billion after a recent blowout in estimated costs).

Funds are also shifted between different agencies in government. There are spending increases in portfolios such as defence and social security, cuts in others like climate change and agriculture. Much of the growth in program spending was foreshadowed before the budget, such as more funding for Medicare and responses to the Bondi attack.

Regulatory reform

Past budgets have been mostly about tax and spending. This budget also includes a sweeping package of regulatory reform.

Some of this is in a “productivity package” that includes abolishing nuisance tariffs, faster environmental approvals, streamlining border biosecurity, and making it easier for businesses to engage with government.

A risk for the federal government is many of the elements of the package rely on the states and territories – including reform to the national electricity market, harmonising retail tenancy regulation, and simplifying building regulation.

While this is all highly desirable for improved productivity, history tells us states and territories can hold the Commonwealth hostage. They can demand additional payments or other policy concessions before they act on reforms. It is a risk.

The government has also released a list of 14 legislative reforms to reduce regulation on businesses and households. They are wide-ranging and diverse, from higher reporting thresholds for large companies, through reducing barriers to small bank mergers, to reducing bereavement costs for families.

Better regulation is closely aligned to the productivity agenda. In addition to the reforms aimed at reducing the burden of regulation the government has promised further reviews aimed at better regulation.

It also promises, under the heading “single national market” a set of clear and consistent rules across federal and state governments. Again, progress will depend on the cooperation of other jurisdictions, which is not guaranteed.

In summary, the budget is workable. It includes valuable tax reforms, wide-ranging spending well-targeted to areas of need, and a more comprehensive regulatory reform than in most budgets.

However, there are significant risks. The NDIS savings estimates rely on compliance working. The economic forecasts assume global oil prices start to fall from mid-2026 (just weeks away). The regulatory reform agenda relies on state and territory cooperation.

As the treasurer said in his budget speech: we live in a time of “extreme uncertainty”.

Stephen Bartos, Professor of Economics, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Aruna Sathanapally, Grattan Institute and Matthew Bowes, Grattan Institute

The 2026 federal budget was delivered after a year of building expectations for bold reform.

Part of that buildup was last year’s economic reform roundtable. That highlighted a laundry list of “regulatory hairballs” from the Productivity Commission, as well as opportunities to boost tepid productivity growth by supporting new industries and technologies.

And part of the buildup was fuelled by the expectation that the government – with its strong majority – would be in the position to make some of the tough tax and spending choices previous governments have put off.

This opened the door to reforming a tax system that is less efficient, less fair and less sustainable than it should be.

Last night, the government delivered a broad and ambitious budget. It is meaningfully working its way through the to-do list for making Australia’s economy more dynamic and thereby more resilient. It tackles our largest spending pressures, and adapts our tax system to be less leaky and more sustainable.

Many of the measures were announced before budget night – lifting defence spending, reining in the National Disability Insurance Scheme (NDIS) and addressing fuel security, given the shock to global supplies caused by the Middle East war.

What remained was changes to the tax system, and how the measures together would shift Australia’s long-term budget trajectory.

Finally, tax reform worth writing about

The budget set its focus on Australia’s imbalanced personal income tax system, which leaves taxes on wages and salaries to do the heavy lifting, while granting generous concessions to income from wealth.

This has had implications both for the “horizontal equity” of the system – taxpayers with similar incomes often face very different tax bills – and for our housing system.

For years, it has been clear that the combination of a capital gains tax discount, along with the ability for property owners to deduct rental losses from wage and salary income (“negative gearing”), had given highly leveraged property investors a leg-up in the housing market.

Last night, Treasury gave us yet more evidence of this.

Analysis of tax data showed that the top 1% of income earners (with incomes of around $800,000 per year) over their working lives have received an average benefit of more than A$700,000 since 2000. This compared to a benefit of just $12,400 for the typical income earner, who earns around $62,000 per year.

The government’s reforms seek to wind back these expensive concessions. Importantly, a minimum tax rate of 30% will be applied both to future capital gains, and to distributions from trusts, with some exceptions (such as for farmers). This removes avenues used by many wealthier taxpayers to reduce their tax bill.

For younger Australians, this means there may be fewer investors competing at auctions after budget night.

Notably, while the capital gain changes do not begin until 2027, they will apply to all gains from that date, meaning existing investments are not fully “grandfathered” – or allowed to follow old rules. This increases the revenue raised by the proposal, and avoids unfairly locking in tax benefits for the current cohort of investors.

While existing negatively geared investments are fully grandfathered, the reforms to the capital gains discount are likely to reduce the incentive to hold onto these loss-making properties regardless.

The revenue raised by these policies is small to begin with, but within a decade we estimate they will reduce the deficit by more than $20 billion per year.

By contrast, the impact on property prices is likely to be muted, with Treasury estimating prices will be 2% lower than otherwise. This is largely because the decrease in investor demand will be offset by an increase in purchases by homeowners – shifting the composition of property ownership.

Supply is still critical

However, this budget’s real legacy on housing will be defined by its attempts to boost housing supply.

Treasury estimates these tax changes will lead to 35,000 fewer homes being built over the next decade. But this is balanced out by other policies, such as a new $2 billion Local Infrastructure Fund. This will pay the states to loosen restrictive planning laws and boost construction productivity.

This is critical. As Grattan’s previous research has shown, planning reforms to unlock more well-located homes have the potential to boost housing construction by more than 60,000 homes each year, while also enabling more vibrant cities that support a more dynamic economy.

A quiet night for government spending

By contrast, the expenditure side of the budget was more subdued. In light of rising demand for social services, and with inflation forecast to rise to 5% this year due to higher fuel prices, spending restraint was the order of the day.

The government has made savings across a wide range of areas, from a reformed electric vehicle tax discount to lower private health insurance rebates, and pulling back tax credits and uncommitted funding set aside for clean industries.

By far the biggest saving in this budget was the decision to slash the growth of the NDIS to an average 2% over the next four years. This measure is worth more than $36 billion over that period, comfortably eclipsing the overall improvement in the budget deficit of just over $26 billion.

And these savings are projected to continue to grow, reaching about 0.5% of GDP by 2035. According to Treasury’s projections, this alone is enough to push the budget into surplus by the mid-2030s, an improvement from the decade of deficits projected in last December’s mid-year update.

Limited cost-of-living support

But this budget was also defined by what the government chose not to do. Despite growing concerns about the impacts from the fuel crisis, the government did not roll out additional cost-of-living relief, and it wisely did not extend the fuel excise cut.

While that helped keep spending in check, it also left families on working-age welfare payments – who have long needed additional support – out in the cold.

Fundamentally, intergenerational fairness requires governments to take responsibility for the long-term outcomes of today’s choices, even if those choices create short-term losers.

This budget starts to tilt the balance in favour of younger, working Australians trying to buy their first home. It was worth the wait.

Aruna Sathanapally, Chief Executive, Grattan Institute and Matthew Bowes, Senior Associate, Economic Prosperity and Democracy, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.