Federal Budget 2026: Investors slugged billions while working Australians receive modest tax relief

Investors will be slugged billions in additional tax while working Australians will receive modest relief under a Budget Treasurer Jim Chalmers is hailing as the “most ambitious” in decades to address “intergenerational anxieties”.

Volatility from the Iran war is forecast to push inflation to 5 per cent but also deliver $33 billion in revenue upgrades over the next two years as commodity prices soar, particularly LNG exports.

The Albanese Government has confirmed it will break a string of election promises by increasing taxes on capital gains, trusts and negative gearing which are expected to generate over $8 billion over two years.

As many as 150 individual savings measures are included in the Budget including massive cuts to the NDIS, with the Treasurer saying the bottom line will improve by $26 billion over the next four years, once spending is factored in.

Among those decisions is a new $250 Working Australians Tax Offset that will go to 13.3 million workers in the second half of 2027, to be paid through tax returns each year on an ongoing basis.

Describing Labor’s fifth Budget as “five budgets in one”, the Treasurer says its key pillars are a fuel security plan, cost of living relief and housing, productivity and growth strategy, ambitious tax reforms and record savings.

Treasury has forecast the oil price will remain high at around $100USD per barrel until the end of next month, before coming down to $80 in 12 months’ time, but could hit $200 and take three years to come back down under modelling for a “severe scenario”.

Chalmers insists Australia would still avoid a recession under this more dire forecast, but unemployment would spike to pre-pandemic levels and inflation would peak above 7 per cent.

The Government is also boasting productivity reforms will reduce Australia’s regulatory burden by $10.2 billion each year, and boost long-run GDP growth by around $13 billion a year.

Broken tax promises on Capital Gains, Negative Gearing and Trusts

Despite the Prime Minister and Treasurer repeatedly ruling out changes to capital gains tax (CGT), trusts and negative gearing, Labor has confirmed it is now adopting taxation measures closely resembling those proposed by Bill Shorten in his failed 2019 election.

From 1 July 2027, the 50 per cent CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30 per cent minimum tax on net capital gains.

The new changes which Labor openly concedes are “controversial” will apply to all classes of CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships.

Dr Chalmers argued the CGT changes introduced by the Howard government in 1999 had “created distortion in the housing market” and Labor was finally “rebalancing the tax system that got out of whack”.

From July the government will also limit negative gearing for residential properties to new housing builds only, and the changes will take effect immediately after the Budget is handed down on Tuesday night.

Properties bought before May 12, including contracts that have been entered into but not settled, will be exempt from the taxation changes until they are eventually disposed of.

Investors who buy established housing after Budget night will still be able to deduct losses against residential property income and will be able to carry forward unused losses to future years but won’t be able to deduct them against other income like wages.

Once combined the new taxation measures for negative gearing, CGT changes and trusts are expected to generate around $8 billion once they come into effect.

“I acknowledge this is a controversial change, (this is) a government coming to a different view,” the Treasurer told reporters inside the Budget lockup.

“When a government comes to a different view, the onus is on the government to explain why,” he argued.

Working Australians Tax Offset

As the government imposes increased taxes on investors it is introducing a new $250 Working Australians Tax Offset, that will go directly to 13.3 million workers when they submit a tax return.

The measure will begin from the second half of 2027 and will be paid each year on an ongoing and automatic basis and is expected to cost $6.3 billion over two years, coming into effect just before Australians are next expected to go to the polls.

“This offset is targeted to workers and represents the most meaningful, permanent increase to the effective tax-free threshold since Labor last increased it more than a decade ago,” Chalmers said.

National Disability Insurance Scheme

One of the biggest and already announced measures in the Budget is an overhaul of the National Disability Insurance Scheme first unveiled by Health Minister Mark Butler which is expected to save a total of $37.8 billion over the next four years.

Despite the massive cuts to the NDIS, it will continue to grow each year and remain Australia’s largest social program outside of the Age Pension.

“We had to save the NDIS from itself, before it consumed itself,” the Treasurer told The Nightly as he prepared to unveil his Budget in Federal Parliament.

“Our savings package will restore the NDIS to its original intent and secure its future, so it grows in a sustainable way in line with programs like Medicare. This difficult but necessary reform will save $37.8 billion over the forward estimates”.

Iran War

In delivering his Budget, the Treasurer has consistently argued that Australians and the Australian economy are paying a “really hefty price” for the ongoing war in the Middle East.

“War in the Middle East has been pushing up prices, pushing down growth, and punishing Australians,” Dr Chalmers says.

He argues the US led attacks on Iran have exposed weaknesses in the global economy and intensified longstanding challenges in Australia.

Despite the massive negative economic impacts of the war, the Budget reveals Australia is also benefiting from massive revenue upgrades for commodities, particularly LNG exports.

“In the near term, higher energy export prices, primarily LNG, lift income tax receipts paid by companies by $19.0 billion,” the Budget predicts.

“Over time, lower forecasts for economic activity, investment, and labour demand lead to a $10.3 billion decline in personal income and superannuation tax receipts. Higher prices and nominal consumption increase GST tax receipts by $1.4 billion.”

Debt and Deficit

Under Labor’s fifth Budget the deficit next financial year is expected to hit $31.5 billion, with deficits to total $150 billion over the next five years, but the Treasurer says the debt and deficit situation continues to improve from what it inherited from the Coalition.

“The Budget deficit next financial year is $2.8 billion lower at $31.5 billion. The bottom line is better in every year over the forward estimates and medium term,” Dr Chalmers says.

“The budget position has improved by $44.9 billion and this makes it more than a quarter of a trillion dollars better than when we came to office”.

“This Budget delivers the largest savings package on record. There are $63.8 billion in savings. Our decisions improve the Budget in net terms by $26.1 billion once you take our responsible provisions into account.”

Government spending this financial year will fall to 26.8 percent of GDP this year, as projected in December, but is forecast to drop further to 26.2 percent of GDP over the next four years.

Doctor Chalmers rejected suggestions Australia was now locked into a “high tax and spend economy”, arguing that government spending as a percent GDP was coming down “quite substantially” and below levels during the Howard government.