Federal Budget 2026: Everything we know so far

Federal Treasurer Jim Chalmers will hand down what is shaping up to be one of Australia’s most consequential federal budgets.

The May 12 budget will be delivered against the backdrop of catastrophic global energy shocks triggered by the war in the Middle East, a spiralling cost-of-living crisis and national debt edging towards $1 trillion.

Critics have relentlessly attacked the government over federal expenditure and accused it of being a key driver of persistent inflation and back-to-back interest rate rises.

The fiscal strategy will also play out in the uncertain context of the US and Israel’s war on Iran. Last week, the International Monetary Fund warned that intensifying energy price shocks triggered by the conflict could unleash a global recession.

While in recent weeks Mr Chalmers has gone as far as describing the budget strategy as “hostage to economic turmoil”, he has promised it will remain ambitious while delivering “substantial savings”.

He has also pledged the budget will focus on “intergenerational inequity” issues in the taxation and housing sectors.

Here’s what we know about the federal budget so far.

NDIS cuts

$15bn will be cut from the National Disability Insurance Scheme (NDIS) over the next four years under sweeping reforms announced by Health Minister Mark Butler.

Mr Butler, speaking at the National Press Club this week, said he would introduce legislation when parliament returns on May 12 to target NDIS “scheme inflation” and crack down on eligibility requirements.

These changes would result in taxpayers spending about $55bn over forward estimates instead of the NDIS costing more than $70bn in 2030, as current projections show.

Initial modelling also showed the number of people on the scheme would be reduced to about 600,000 by the end of the decade, Mr Butler said, from about 760,000 as of April.

He insisted the changes were not a budgetary decision but designed to tackle the ballooning cost of the program, which had become an easy target for rorters and organised crime.

“Obviously, the NDIS is important for the budget because it is such a large social program now,” Mr Butler said.

“But I want to be really clear, this is exactly the package I would have taken to the Expenditure Review Committee, no matter what the budget context, because this is the right package for the NDIS, and it’s the right package for participants.”

Defence spending boost

The government’s 2026 National Defence Strategy (NDS) will also be contained in the May budget, with spending increasing by more than $53bn over forward estimates in the next decade, Defence Minister Richard Marles announced last week.

The increase will be funded partly by the sale of valuable military land.

Total funding across defence will be at $887bn, according to the plan, with about $425bn allocated funding for defence capabilities set out in the 2026 Integrated Investment Program – an increase of more than $150bn since 2020.

The NDS was a “clear-eyed assessment of a more dangerous and uncertain world and a confident response to it”, Mr Marles said at the time.

“It puts Australia on a path to strengthen our defence self-reliance,” he said.

“It reinforces the industrial and national foundations of defence, and it situates Australia firmly within a network of trusted regional and global partnerships.

“Above all, it ensures Australia remains secure, sovereign and ready – not just for today’s challenges, but for the decade ahead.”The strategy was unveiled just weeks after the US and Israel attacked Iran. Mr Marles said at the time the funding boost reflected Australia having to face “its most complex and threatening strategic circumstances since World War Two”. He described the world as having entered a period “defined more by disorder”.

CGT reform

Mr Chalmers has outlined the government is mulling over “a whole range of changes in the tax system” but so far avoided answering any questions about Labor’s deliberations on a controversial change to the capital gains tax (CGT).

CGT is the tax applied to the profit made from selling or disposing of assets, including property and shares.

Under the existing model – introduced by the Howard government in 1999 – Australian investors who have owned the asset for at least 12 months can reduce their capital gains tax by 50 per cent.

This 50 per cent discount changed the original design of the policy, which pre-1999 would only tax the “real” rise in value of an asset, taking into account inflation.

The government is weighing up a return to the original model, with Mr Chalmers reportedly in favour of scaling back the 50 per cent discount rather than scrapping it altogether.

A Greens-led senate inquiry found in March that the CGT discount skewed home ownership towards investors, disproportionately benefited wealthier Australians and distorted productive investment.

This, alongside Mr Chalmers’ declaration that the May 12 budget will focus on addressing “intergenerational unfairness” in the tax system and housing market, has ramped up speculation the Howard-era settings will be scrapped.

Parliamentary budget office analysis commissioned by the inquiry found the concession would cost the budget $247bn over the next 10 years.

But critics claim scrapping the 50 per cent discount could disincentivise property investors.