Treasurer Jim Chalmers has handed down a politically charged 2026–27 Federal Budget featuring tax cuts, sweeping housing tax reforms, temporary fuel relief and a projected $31.5 billion deficit, as the Government responds to a global oil shock triggered by conflict in the Middle East. This budget will see one of the most significant housing and tax reform packages in years.
The Budget forecasts inflation will rise sharply to 5 per cent in 2026, economic growth will slow to 1.75 per cent, and gross Commonwealth debt will exceed $1 trillion, even as the Government argues the fiscal position has materially improved compared with earlier projections.
New Tax Cuts For Workers
The centrepiece of the Budget is a fresh package of tax relief aimed at workers and households facing renewed cost-of-living pressure.
Key measures include:
- New $250 Working Australians Tax Offset
- $1,000 instant tax deduction for workers
- 16% tax bracket to be cut to 15% from July 2026, which will be further cut to 14% from July 2027
- Higher Medicare levy low-income thresholds
The Government says more than 13 million Australians will benefit.
Fuel Excise Cut Amid Oil Shock
With conflict in the Middle East pushing global oil prices higher, the Government has announced continued temporary fuel relief.
- 32 cent cut to fuel excise
- Elimination of the heavy vehicle road user charge
- ACCC fuel price monitoring expansion
- Supply chain resilience measures
- 20% domestic gas reservation policy
- $14.8 billion fuel security and resilience package, minimum of 50-day supply of diesel and Jet Fuel reserves.
Treasury says the oil shock will materially worsen near-term inflation pressures.
Asset and Housing Tax Overhaul
One of the most politically significant changes is housing and capital gains tax reform.
The Government will:
- Reform negative gearing
- Reform capital gains tax concessions
- Extend the ban on foreign purchases of established homes
- Reform discretionary trust tax arrangements
- Create a $2 billion Local Infrastructure Fund to support housing supply
Treasury says the changes could support an additional 75,000 first-home buyers over the decade.
Business and Productivity Push
The Budget also includes a broader economic reform package aimed at lifting productivity and business investment.
Key measures include:
- A permanent $20,000 instant asset write-off for small businesses
- Expanded support for venture capital and startup investment
- Business tax reforms including loss refundability measures
- Regulatory reforms aimed at reducing compliance costs
- Planning and approvals reform to accelerate investment and housing supply
- Measures to support AI adoption, innovation and productivity growth
Economic Outlook Worsens
The macro picture is notably weaker.
Treasury forecasts:
| Indicator | 2026-27 |
| Real GDP Growth | 1.75% |
| Inflation | 5.0% |
| Unemployment | 4.5% |
| Wage Growth | 3.5% |
| Nominal GDP | 4.25% |
The Government attributes much of the deterioration to global energy disruptions.
Deficits Continue
The underlying cash balance remains in deficit across the forward estimates.
Projected balances:
- 2025–26: -$28.3bn
- 2026–27: -$31.5bn
- 2027–28: -$31.0bn
- 2028–29: -$34.4bn
- 2029–30: -$25.3bn
The budget is expected to return to surplus by 2034-35, a year earlier than previously projected.
This is materially healthier than the projections at the 2025-2026 budget. Treasury says the Budget position has improved by $44.9 billion compared with MYEFO, helped by spending restraint and revenue upgrades.
Despite stating that debt is lower than previously forecast, total debt continues to rise.
Treasury Projects
- Gross debt 2026–27: $1.05 trillion (34% of GDP)
- Net debt 2026–27: $616.6 billion (19.9% of GDP)
- Gross debt peak: 35.8% of GDP
Treasury says gross debt will peak earlier and lower than previously forecast, and that Australia’s public debt remains low compared with other advanced economies. Debt to GDP will remain lower than inherited when it was 38.5% in 2021-22.
Fiscal Restraint
The Government is also making the case that this is not a conventional spending blowout budget.
Treasury says:
- The budget position has improved by $44.9 billion compared with MYEFO
- $63.8 billion in savings and reprioritisations have been identified
- Every tax receipt upgrade has been returned to the budget
- Real payments growth is projected to average 1.5 per cent over the eight years to 2029–30
- NDIS reforms aimed at returning the scheme to its original intent, forming a central part of the Government’s fiscal savings strategy
Increased Funding
Healthcare Expansion
Healthcare is another major winner in the Budget.
Key measures include:
- $25 billion in additional public hospital funding over five years
- $11.4 billion to expand bulk billing incentives
- $1.8 billion to make Medicare Urgent Care Clinics permanent
- $5.9 billion for new PBS medicines and cheaper medicines
- Funding for RSV vaccines for eligible older Australians
The Government says these measures are aimed at improving affordability and easing pressure on hospitals.
The Budget also includes $3.7 billion for aged care reforms, including new residential aged care beds, Support at Home packages, and measures to improve care quality and affordability.
Defence and National Security
The Budget also includes a substantial defence package.
Key measures include:
- $53 billion in additional defence investment over ten years
- Expanded submarine capability under AUKUS
- Autonomous and uncrewed defence systems investment
- Naval shipbuilding expansion in Western Australia
Bottom Line
The 2026 budget isn’t simply a conventional pre-election giveaway budget.
Instead, it is a hybrid package: part emergency response to a global oil shock, part cost-of-living intervention, and part structural tax reform.
For households, the immediate takeaway is tax relief and cheaper fuel.
For the broader economy, however, the outlook is softer growth, higher inflation, and several more years of deficits.
Critics are likely to argue the package risks stimulating demand during an inflation shock, while the Government will argue the savings measures and structural reforms preserve fiscal discipline.