Treasurer Jim Chalmers has announced the most ambitious and politically risky tax changes since the Howard era as part of Australia's 2026 federal budget. The budget defies the looming economic threat of the Iran war to push the nation along the 'hard road to reform.'
Property Tax Overhaul to Boost 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 an inflation-linked approach that existed before 1999. Treasury modelling suggests these changes will help an extra 75,000 Australians achieve home ownership over the next decade.
'I think the time is right for these kinds of reforms and for this level of ambition,' Chalmers said. 'Around the Australian community there is an appetite for a government which is prepared to take on some difficult things.'
NDIS Cuts and Cost-of-Living Measures
The budget includes deep cuts to the National Disability Insurance Scheme, saving $36.2 billion over four years. Tax relief for over 13 million workers comes via an automatic $250 'Working Australians Tax Offset,' delayed until 2027-28. A $1,000 instant tax deduction will provide an average $205 benefit for 6.2 million people in 2026-27. The budget also allocates $2.6 billion for a temporary 26-cent cut to fuel excise.
However, Labor held back from major new cost-of-living support measures, a break from post-Covid budget trends. Instead, the government prepared for a worst-case scenario where oil prices double to US$200 per barrel, driving inflation above 7% and unemployment above 5%.
Political Reactions
Shadow Treasurer Tim Wilson criticized the budget for higher taxes, more debt, and no measures to lift living standards. The Coalition will oppose changes to negative gearing and capital gains tax but support the Working Australians Tax Offset. Greens leader Larissa Waters said the proposals did not go far enough, calling for more corporate tax clawbacks. Independent Senator David Pocock described the budget as a 'mixed bag,' praising housing reforms but criticizing the lack of a gas export tax.
Fiscal Outlook
The budget shows cumulative improvements of $44.9 billion over five years compared to the December update, but deficits remain: $28.3 billion in 2025-26, growing to $34.4 billion in 2028-29. Structural savings from NDIS reforms project a return to surplus in a decade.
'Tonight we choose the hard road to reform, not the path of least resistance,' Chalmers said. 'By responding to the pressure Australians confront today, and fulfilling our obligations to the generations to come.'
