The 2026-2027 budget is set to be one of the most reformative and possibly infamous budgets in years. So far this is what we know.

1. Tax Hikes

• CGT – The current 50% discount is to be replaced with its pre-1999 indexation from July 2027.
• Negative Gearing – Changed to be only for new builds from July 2027 and will be grandfathered.
• Trust Taxation – Distributions may be taxed at 30% to align with the middle income bracket as advocated in Allegra Spenders Tax White Paper. Alternatively, it may be taxed at 25% to align with tax rate on SME’s.
• EV – Reducing tax benefits for vehicles that cost over $75,000.
• Fuel Excise – Likely to be restored to its full price starting July 2026.

2. Tax Cuts

• Income Tax Cuts – Cutting the 16% bracket to 15%, cutting up to $268 per year from 2026-2027. Another cut to 14% is expected in 2027-2028.
• Instant Tax Deduction – Starting from 1 July 2026 for the 2026–27 financial year, meaning it will impact tax returns lodged from July 2027. Treasury estimates average returns will be $205.
• Instant Asset Tax Write Off – $20,000 annual write off for businesses with less than $10Mn turnover to be made permanent.
• Tax Loss Carry Over – SE’s allowed to offset losses again previous year’s profits.
• R&D Tax Credit – Increase in the cap on expenses that can be claimed. It is currently $150Mn.

3. Spending Increases

• Fuel Reserve – Minimum of 50-day supply of diesel and Jet Fuel reserves in a $10.7Bn fuel security package.
• Defence – Increase of $14Bn in spending aiming to bring the defence budget to 2.3% of GDP over the next 4 years.
• Suburban Rail Loop – Additional $3.8Bn.
• Housing – $2Bn Housing Enabling Infrastructure Fund to connect housing and sewerage for housing development. Targeting 65,000 homes over 10 years.
• Medicare – $1.8Bn over several years in urgent care clinic expansion.
• Aged care – $3Bn+ in aged care measures.
• Youth Housing / Homelessness – $59.4m over 4 years to support younger Australians at risk of homelessness.

4. Spending Cuts

• Public Sector – $2.7Bn reduction in external labour and non-wage spending.
• Regulatory Changes – Cutting regulatory costs by $10Bn a year.
• NDIS – Tightening of eligibility and rules to save $22Bn over 4 years.
• PHI Rebate – Reduction for older Australians, 65-69 reduced by 4% and 70+ by 8%.

Fiscal Positon

Budget Bottom Line

The underlying balance is expected to see a $45Bn improvement over the forward estimates versus the 2025-2026 MYEFO, driven by spending restraint, savings measures and stronger revenue. Deficits are still expected to continue with no surplus in the next 4 years but the balance is to be healthier. The 2025-2026 deficit is expected to be around $24-$29Bn, materially better than the $42Bn+ expected in the 2024-2025 forward estimates and the 2025-2026 PEFO and the $36.8Bn in the MYEFO forecasts. The 2025-2026 budget originally didn’t forecast a surplus for a decade until 2035-2036. Treasurer Jim Chalmers seems eager to bring the budget back to surplus sooner after delivering Australia’s first budget surplus since the GFC and its largest ever nominal back-to-back surplus in 2022-23 and 2023-24 totalling $37.9Bn.

Budget’s Spending Restraint

Government signalling this as one of the most restrained budget in years with real payments growth expected to average 1.5% annually, unusually low by historical standards and the lowest in 35 years. This restraint is being maintained in the face of inflationary pressures and rate hikes, helping avoid adding further demand into the economy and supporting the fight against inflation.