Key measures

In the face of strong economic headwinds from conflict in the Middle-East the government has taken the opportunity to embark upon significant economic reform with major changes to the taxation of capital gains and negative gearing to help fund modest personal income tax cuts for workers and R&D tax reform among other measures.

• $250 Working Australians Tax Offset and a $1,000 instant tax deduction from 2027 to be added to personal income tax cuts already legislated for low- and middle-income earners
• Over $3.5 billion in measures that lower taxes for businesses and start-ups, including loss refundability and a permanent $20,000 instant asset write-off
• Major Capital Gains Tax (CGT) and negative gearing reforms with only new construction to benefit from the existing 50% discount and negative gearing arrangements. Grandfathering and transition measures for existing assets and an expected 75,000 first-time homeowners to enter the market as a result of the changes
• Minimum 30% tax on discretionary trusts from 1 July 2028
• Tax concessions available to new EVs to phase down for newly acquired vehicles between 2027 and 2029
• $3.7 billion to provide more beds, more support packages and better care for older Australians
• $25 billion new investment in public hospitals and $1.8 billion investment in new Medicare urgent Care Clinics
• Significant budget savings over the forward estimates with more than half to be from a decrease in NDIS payments by $37.8 billion over four years to 2029–30
• $2 billion for local housing infrastructure to support up to 65,000 new homes
• $53 billion investment in Defence capabilities over the next 10 years

What’s in the Budget for Super

• $17.8 million over four years will be provided to strengthen governance requirements and supervision of managed Investment Schemes (including $10.3 million to ASIC), with this funding to be partially met through cost recovery
• The Budget has strongly pointed to the Government’s intention to reform the superannuation performance test to reduce barriers to investment
• $1.1 billion to be invested in a Cleaner Fuels Program to provide production support for low-carbon liquid fuels
• Capital Gains Tax reforms including inflation indexation of cost base and minimum 30% tax rate not to be applied to Superannuation Funds. Age pensioners and other income support recipients exempt from new minimum tax on capital gains.

Economic and Budget outlook

With significant uncertainty over the global economy, the Budget paints a resilient Australian economy in the period ahead. Inflation is expected to increase to 5% in the 2026-27 year before falling to the long run average of 2.5% in the following years.

Employment is expected to be resilient with unemployment only projected to increase by ¼ of a percent from 4 ¼ to 4 ½ percent over the coming year and wages growth is expected to increase only modestly over the coming year despite inflationary pressures.

While the labour market is expected to be resilient, GDP growth will slow by ½ percent from 2 ¼ to 1 ¾ percent in the year ahead.

The budget position has strengthened relative to the mid-year outlook with deficits to be cumulatively $44.9 billion lower over the forward estimates period. The majority of this improvement is due to receipts (including tax revenue) increasing by $41.1 billion with revenue-related policy decisions accounting for $8.8 billion of this improvement.

A significant contribution to the upward revision in tax revenue is from superannuation taxes with the Government projecting a $13.8 billion increase in super taxes over the next five years driven by higher than expected current year collections and higher than expected contributions. However, the Budget papers note super taxes are notoriously volatile.

These forecasts are contingent upon the global price of oil falling to $80 a barrel over the course of the next year – which may prove to be an optimistic assumption. The Budget has modelled other more severe scenarios including oil prices peaking at $200 USD a barrel during September 2026. This results in inflation peaking at 7 ¼ percent in the year to December and unemployment increasing to 5% and GDP growth slowing by a more substantial ½ percent over the next two years.

With this uncertainty the government might have been less ambitious in its reform objectives but it’s decided there is no time like the present to pursue generational reforms designed to rebalance the taxation of capital over labour and provide some optimism for aspiring younger home owners.

Key tax reform measures in detail

New Capital Gains Tax Arrangements

• From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30% minimum tax on net capital gains. These changes will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships (excludes superannuation funds).
• Transitional arrangements will limit the impact on existing investments by ensuring the changes only apply to gains arising on or after 1 July 2027. The 50% CGT discount will continue to apply to gains arising before 1 July 2027. Capital gains on pre-1985 assets arising before 1 July 2027 will remain exempt from CGT.
• To maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50% CGT discount, or cost base indexation and the minimum tax. Income support payment recipients, including Age Pension recipients, will be exempt from the minimum tax.

Reforming Negative Gearing to Support New Housing Supply

• The Government will limit negative gearing for residential property to new builds. From 1 July 2027, losses from established residential properties will only be deductible against rental income or the capital gains from residential properties. Excess losses will be carried forward and can be offset against residential property income in future years.
• These changes will apply to established residential properties acquired from 7:30PM (AEST) on 12 May 2026. Properties acquired prior to this time (including contracts entered into but not yet settled) will be exempt from the changes until disposed of.
• Eligible new builds will be exempt from the changes, ensuring the benefits of negative gearing are directed to investment that increases the housing stock. Properties in widely held trusts and superannuation funds will be excluded, alongside targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

The combined effect of these two major reforms on tax revenue is relatively modest but will increase over time. It is expected to increase receipts by $3.6 billion over the five years from 2025– 26.