The Albanese Government has ignited a likely backlash from investors after confirming sweeping cuts to housing tax concessions, the centrepiece of an ambitious Budget characterised as generational redistribution, pitched particularly at first home buyers.
Unveiling what he described as the most significant tax overhaul in a generation, Treasurer Jim Chalmers declared the Government was “levelling the playing field” by winding back negative gearing on new investments and capital gains tax concessions long blamed for fuelling the housing crisis.
Chalmers’ Budget, delivered amid mounting inflationary pressures caused by the Middle East conflict, also offers a new modest $250 per year tax cut for around 13 million workers.
Tonight’s Budget, the first delivered since Labor’s landslide election victory, also includes an increase in taxes on family trusts as part of a deliberate and considered move to shift the burden away from wage earners onto those who earn their wealth from asset investment.
The introduction of a minimum 30 per cent capital gains tax will apply to property and shares sold from July 2027, while negative gearing of new investments will be abolished immediately except for new builds.
With families nervously eyeing a further hike in mortgage rates, the Budget forecasts inflation to rise to 5 per cent this year – well above the Reserve Bank’s target band of 2-3 per cent. The Budget suggests inflation won’t return to a manageable level for at least a year – and warns that a “severe” downturn stemming from the Middle East could prolong this economic pain.
The Treasurer blamed the war in Iran for significantly impacting growth with Treasury forecasting GDP to fall to a limp 1.75 per cent, down from 2.25 per cent in the previous year. And in a sombre message to the Parliament, the Treasurer said a “more severe scenario”, where the oil price peaks at $200 could see inflation peak at 7 per cent – and take three years to fall back down.
However, the economic news is not all bad, with unemployment forecast to remain low.
The sweeping tax changes will deliver a revenue windfall in the billions of dollars. Major savings will be banked from a crackdown on National Disability Insurance Scheme spending, projected to save $37.8 billion over the next four years.
The Treasurer sought to talk up his “responsible economic management” which will see the Budget deficit $2.8 billion lower next year, coming in at $31.5 billion.
“The bottom line is better in every year over the forward estimates,” Mr Chalmers said, claiming the budget position had improved by $44.9 billion.
The Budget includes a suite of measures aimed at building sovereign capability in the face of ongoing global conflict and economic uncertainty.
Nearly $15 billion has been confirmed to build fuel security and resilience, including an increase in the national fuel reserve scheme.
A billion dollars in interest free loans will be offered to manufacturing firms and other businesses to help bolster supply chains. The Government is also delivering on a long-held ambition by Prime Minister Anthony Albanese to increase Australia’s sovereign shipping fleet.
Even before handing down its fifth Budget, the Government had begun marketing its tax changes which it expects will lower housing prices over time. The Budget is pitched squarely at those younger Australians who have struggled to overcome rising house prices across the nation, fuelled by generous tax concessions for investors.
From tonight, negative gearing will only apply to new housing stock while the changes to capital gains tax will also be introduced immediately. As the Treasurer told Parliament, the Government is “delivering a fairer tax system for workers, first home buyers and future generations”.
This, he claimed, will help to rebalance a system which is more generous to assets than it is to labour.
With a commanding 94 seats in the House of Representatives, and the Coalition in defence as it faces an assault from One Nation and Teal independents, the Government is banking on winning the political debate with support from Gen Z and Millennial voters in particular.
But the Opposition immediately latched onto what it calls a blatant broken promise from Labor, in the lead up to the 2025 election, not to touch negative gearing and other tax concessions.
Shadow Treasurer, Tim Wilson, wasted no time in attacking the Budget for its “broken promises, higher taxes, lower living standards, and fewer homes”.
The Opposition’s early comments set the scene for their Budget Reply on Thursday and the passage of the contentious elements of the Budget requiring political trade-offs with the Greens or the Coalition in the Senate.
Reach out to our Canberra team if you would like to discuss the new Federal Budget and what it means for you.
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