A budget of reform under pressure: how Labor’s fourth budget reshapes Australia

01 — Overview
Executive summary

The 2026–27 Federal Budget, delivered on 12 May 2026 by Treasurer Jim Chalmers, is at once a crisis response and a structural reform package. Australia is contending with the most significant disruption to global oil supplies on record — a Middle East conflict that has wiped roughly one-fifth of seaborne oil and gas off the global market, sent fuel prices surging, and pushed headline inflation to 4.6 per cent in the year to March 2026. Yet rather than retreating into pure stimulus, Labor has used the moment to advance the most consequential set of tax changes in more than two decades.

The headline measures are unusually bold. From 1 July 2027, the 50 per cent capital gains tax discount will be replaced by cost base indexation paired with a 30 per cent minimum tax on real capital gains. Negative gearing on established residential property will be limited to new builds only. A new 30 per cent minimum tax on discretionary trusts will commence from 1 July 2028. The revenue raised will fund a permanent Working Australians Tax Offset (WATO) of up to $250 — pushing the effective tax-free threshold to nearly $20,000 and benefiting more than 13 million workers — alongside a new $1,000 instant tax deduction that will eliminate paperwork for millions of Australians at tax time.

Around these tax reforms, the Budget weaves a $2.9 billion temporary fuel excise cut, a $25 billion boost to public hospitals, $1.8 billion to make Medicare Urgent Care Clinics permanent, $5.9 billion in new Pharmaceutical Benefits Scheme listings, $2 billion for a Local Infrastructure Fund to unlock new housing supply, a $53 billion defence uplift over the decade, and $63.8 billion in savings — including the most far-reaching reforms to the National Disability Insurance Scheme since its inception.

The Government frames the document as “responsible, focused on resilience and reform”. Its critics will note that several of the biggest changes — the WATO, capital gains reform, the negative gearing limits — do not take effect until 1 July 2027, conveniently after the next federal election, while the structural improvements to the bottom line lean heavily on assumptions about NDIS growth and oil prices that are anything but certain. The deficit for 2026–27 sits at $31.5 billion (1.0 per cent of GDP), gross debt is projected to peak at 35.8 per cent of GDP in 2028–29, and the budget is not forecast to return to balance until 2034–35.

What follows is a detailed walk-through of what is in this Budget, how it will affect everyday Australians, and the impacts it is likely to have on households, businesses, and the broader economy over the coming decade.

02 — Context
The global oil shock and Australia’s position

Every line in this Budget must be read against one event: the Middle East conflict that erupted in early 2026. The Strait of Hormuz handles around one-fifth of the world’s seaborne oil and gas, around one-third of global seaborne fertiliser supply, and a substantial share of the petrochemicals, aluminium and ethylene that feed manufacturing and agriculture worldwide. Treasury describes the resulting disruption as “the largest global oil supply disruption on record” — larger, on a comparable basis, than the 1973 OPEC embargo or the 1990 Gulf War.

For Australian households, the direct consequence has been a 32.8 per cent jump in automotive fuel prices in a single month. For businesses, the shock has hit input costs across diesel, fertiliser, plastics and chemicals — particularly punishing for transport, mining, agriculture, construction and manufacturing. Headline inflation, which had been receding, is now forecast to peak at 5 per cent in the year to June 2026 before easing back to 2½ per cent by mid-2027.

Treasury’s central forecasts assume oil prices begin declining from mid-2026 and stabilise from mid-2027. Real GDP growth is forecast to slow to 1¾ per cent in 2026–27 before recovering to 2¼ per cent in 2027–28. Unemployment, currently around 4¼ per cent, is expected to drift up only modestly to 4½ per cent. Wages growth is expected to remain above 3 per cent.

The risks, however, are pronounced. Treasury also models a more severe scenario in which oil reaches US$200 per barrel: in that world, real GDP would be half a per cent lower across two years, unemployment would peak at around 5 per cent, and inflation would spike to roughly 7¼ per cent — close to the 2022 cost-of-living peak. The fiscal numbers and policy choices in this Budget are calibrated to the central case, but the downside case is plausible enough that Treasury devoted substantial space to it.

Despite all this, Australia enters the shock from a relatively strong position. The economy is growing faster than every other major advanced economy, unemployment remains low, the participation rate sits near record highs, and gross debt is lower as a share of GDP than every G7 economy. The IMF projects Australia will have the fifth-lowest gross debt-to-GDP ratio in the G20 in 2027 — a structural advantage the Government repeatedly leans on as it argues for its policy choices.

03 — Income tax
Tax cuts for every working Australian

The cornerstone of Labor’s personal tax agenda in this Budget is the new Working Australians Tax Offset (WATO). From 1 July 2027, every Australian taxpayer earning income from work — wages, salaries, or sole-trader business income — will receive a non-refundable tax offset of up to $250 per year, paid automatically through their tax return.

In practical terms, the WATO lifts the effective tax-free threshold for workers from $18,200 to $19,985 — and to $24,985 for workers also receiving the Low Income Tax Offset. Treasury describes this as the largest permanent increase in the effective tax-free threshold since 2012–13. More than 13 million workers will benefit, including around 6.3 million women.

The WATO sits atop two further rounds of legislated tax cuts already in train. The bottom marginal rate — applying to income between $18,201 and $45,000 — falls from 16 per cent to 15 per cent from 1 July 2026, and to 14 per cent from 1 July 2027. Combined with these reductions and the first round of cuts already delivered in 2024–25, an Australian worker on average earnings ($81,245) will receive a tax cut of $1,978 in 2026–27 and $2,496 per year from 2027–28, relative to 2023–24 tax settings.

The $1,000 instant tax deduction

Alongside the WATO, the Government will introduce a $1,000 instant tax deduction for work-related expenses from the 2026–27 income year. Workers can simply claim the deduction on their return without producing receipts or itemising. The Australian Taxation Office estimates this will collectively save individuals $380 million in compliance costs each year, with 6.2 million workers expected to use it. The average tax benefit is around $205.

This is a deceptively significant change. Australian tax law has long demanded receipts and substantiation for almost every claim, generating a thriving industry of last-minute shoeboxes-of-receipts and tax-agent appointments. The instant deduction will not replace itemised claims (workers can still claim above $1,000 if they have the records), but it materially reduces friction for the typical PAYG employee.

Medicare levy threshold

The Medicare levy low-income thresholds for singles, families, seniors and pensioners will increase by 2.9 per cent from the 2025–26 income year. More than one million Australians on lower incomes will either continue to be exempt or pay a reduced levy rate. The measure costs the budget $450 million over five years.

How average tax rates change

For the average worker, the cumulative effect is meaningful. The average tax rate for a worker on average earnings — taking the instant deduction into account — falls from 21.9 per cent in 2023–24 to 20.2 per cent in 2027–28, and is not expected to exceed 2023–24 levels until 2032–33. Across all taxpayers, the average rate drops from 25.5 per cent to 24.7 per cent. That said, the deeper point Treasury makes is structural: even with these cuts, bracket creep will gradually push the personal tax burden back up over time. The reforms elsewhere in this Budget — particularly to CGT and trusts — are explicitly designed to create fiscal room for further tax cuts in future.

04 — Housing tax
Negative gearing and capital gains reform

This is the section that will dominate political debate for the rest of 2026. From 1 July 2027, the Government will fundamentally rewrite how Australia taxes income from investment property and capital gains.

What changes for negative gearing

Negative gearing — the practice of using losses from a rental property to reduce taxable income from wages or other sources — will be restricted to new builds. Losses from established residential properties will only be deductible against rental income or capital gains from residential property. Excess losses can be carried forward indefinitely and offset against future residential property income.

The change applies only to properties acquired after 7:30pm AEST on 12 May 2026 (Budget night). Properties already held — and properties under contract but not yet settled — are grandfathered indefinitely. New builds, build-to-rent developments, properties held in widely held trusts or superannuation funds, and private investments supporting government housing programs are all exempt.

What changes for capital gains tax

The 50 per cent CGT discount for individuals, trusts and partnerships — in place since 1999 — will be replaced from 1 July 2027 by a return to cost base indexation (so only real, inflation-adjusted gains are taxed) plus a 30 per cent minimum tax rate on net capital gains. Pre-1985 assets remain exempt from CGT for gains arising before 1 July 2027.

For property investors, this is a one-two punch: real gains are taxed, but at a minimum of 30 per cent regardless of the seller’s marginal rate. The minimum tax aims to remove a long-standing distortion where investors time asset sales for years when their income is lower — for example, after retirement — to slash their effective tax rate. Treasury data shows the average marginal rate investors faced on capital gains between 2009–10 and 2022–23 was around 25 per cent — lower than that paid by a full-time minimum-wage worker.

To preserve incentives for new supply, investors who buy new residential properties will be able to choose either the old 50 per cent discount or the new indexation-plus-minimum-tax regime when they sell. Age Pension and income-support recipients will be exempt from the minimum tax. The main residence exemption is untouched. Superannuation tax arrangements are not affected.

Why now, and what it will mean

Home ownership rates for Australians aged 25–34 have fallen by 7 percentage points in the two decades to 2021, and by 17 percentage points since 1981. In 2021, only half of 30–34-year-olds and roughly one-third of 25–29-year-olds owned a home. The combination of the 50 per cent CGT discount and negative gearing has, in Treasury’s analysis, “made housing assets particularly attractive investments” — pushing investors into existing homes (around 80–90 per cent of investor lending goes to existing dwellings) rather than building new ones.

The OECD has repeatedly recommended Australia phase out or cut these concessions. By limiting negative gearing to new builds, the Government is attempting to redirect the substantial tax subsidy from chasing existing housing to financing additional supply. The expected effect is a modest, temporary slowing in price growth that improves affordability for first home buyers, rather than a dramatic fall.

For existing property investors, the message is clear: arrangements will not change. For those buying their first investment property after Budget night, the calculus shifts decisively toward new builds. For first home buyers, the long-promised “level playing field” finally arrives — though it does so slowly, and against a market where supply remains the dominant constraint.

05 — Trust tax
A 30% minimum tax on discretionary trusts

If the CGT and negative gearing reforms are the headline-grabbers, the introduction of a 30 per cent minimum tax on discretionary trusts is arguably the most structurally important measure in the Budget. From 1 July 2028, trustees of discretionary trusts will pay a flat minimum tax of 30 per cent on the trust’s taxable income before distributions. Beneficiaries (other than corporate beneficiaries) will declare the income in their returns as usual, but will receive non-refundable credits for the tax paid by the trustee.

Why this matters

Australia has more than one million trusts, of which around 840,000 are discretionary — more than double the number two decades ago. In 2022–23, discretionary trusts distributed $142.4 billion in income. Treasury data shows that the wealthiest 10 per cent of households hold more than 90 per cent of the value of private trust wealth. Over 95 per cent of Australians do not receive any income from a discretionary trust.

The flexibility of discretionary trusts — trustees can distribute income to different beneficiaries each year — has long enabled income-splitting between family members in lower tax brackets, or routing through corporate beneficiaries to access the corporate tax rate. The 30 per cent minimum tax closes much of that arbitrage. Trust income will be taxed at a rate broadly comparable to that paid by a worker on average earnings.

Importantly, the reform does not apply to fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates, or charitable trusts. Primary production income of farms, income relating to vulnerable minors, and certain testamentary trust income are also excluded. To help families and small businesses adjust, expanded rollover relief will be available for three years from 1 July 2027 to restructure out of discretionary trusts into companies or fixed trusts without triggering capital gains tax.

The measure is expected to raise $4.5 billion over the forward estimates, with much of that recurring permanently. Together with the negative gearing and CGT reforms, the additional revenue funds the WATO and the wider personal income tax package — which is why the Government can credibly describe its tax reform package as broadly revenue-neutral over the forward estimates.

06 — Relief
Cost-of-living measures

The 2026–27 Budget’s most visible cost-of-living response is the temporary fuel excise cut. From 1 April to 30 June 2026, the Government has more than halved the fuel excise — a 32 cent-per-litre reduction on petrol and diesel — and reduced the Heavy Vehicle Road User Charge to zero. The total package costs $2.9 billion, with the states contributing $400 million to reflect the GST uplift they would otherwise receive on higher fuel prices.

What it means in practice

A 65-litre tank of petrol or diesel costs nearly $23 less. A motorist in regional Australia driving 50 kilometres a day at 10 litres per 100 kilometres saves around $160 over three months. A truck travelling 25,000 kilometres over the period, consuming 55 litres of diesel per 100 kilometres, saves approximately $4,500 in road user charge alone. National average petrol prices have already fallen about 30 per cent since the measure commenced; diesel prices have fallen by about 20 per cent.

The excise cut is explicitly temporary. By the time the new financial year begins on 1 July 2026, the rates revert to normal. The Government’s bet is that global oil prices will be on their way down by then; if they are not, pressure for an extension will be intense.

ACCC enforcement and consumer protection

To prevent the fuel cut being clawed back by retailers, the Australian Competition and Consumer Commission has been directed to increase fuel price monitoring with weekly public reporting across capital cities and 190+ regional locations. The Government has doubled maximum penalties to $100 million for serious breaches of competition and consumer law and is legislating higher penalties under the Oil Code of Conduct.

Energy bill relief and other supports

The $1.8 billion in energy bill relief committed in the 2025–26 Budget continues to flow through to 31 December 2025, with no further extension in this Budget — a notable absence given fuel-driven energy pressures. The Government is instead investing in structural energy measures: $143 million to expand consumer energy resources, ongoing support for the Cheaper Home Batteries program (more than 370,000 batteries installed to date), and accelerated rollout of EV charging infrastructure.

For small businesses navigating the oil shock, the ATO is streamlining access to temporary tax relief until 30 June 2026, including more generous payment plans, remission of interest and penalties, and variation of PAYG instalments. The Small Business Responsible Lending Obligation exemption is extended for a further 10 years. NewAccess for Small Business Owners and the Small Business Debt Helpline receive another $8 million in funding.

07 — Housing supply
Building more homes

If the tax changes work on the demand side, the supply-side measures aim to ensure that what new investment occurs actually delivers homes. The centrepiece is the new $2 billion Local Infrastructure Fund, a stream of the Housing Support Program that funds the “last-mile” infrastructure — water, power, sewerage, roads — that local councils and state utility providers need to unlock new housing developments.

The Local Infrastructure Fund is expected to support up to 65,000 new homes over the decade. Crucially, funding is conditional on states and territories committing to further productivity reforms — speeding up approvals, releasing more land ready to build, and delivering a genuinely national construction code. Treasury estimates that a 10 per cent reduction in regulatory costs in housing could save around $3 billion a year and unlock tens of thousands of additional homes.

This brings total Commonwealth investment in housing-enabling infrastructure to $6.3 billion since Labor came to office, with a further $5.9 billion available to states and territories under the 100,000 Homes for First Home Buyers program. The headline target — 1.2 million well-located new homes by mid-2029 under the National Housing Accord — remains in place, supported by a New Homes Bonus of up to $3 billion in incentive payments to states that exceed their share of the target.

Banning foreign investors from existing homes

The Government’s existing ban on foreign purchases of established dwellings is extended by 2 years and 3 months, to 30 June 2029. The narrow exceptions for purchases that support housing supply continue, as do general exemptions for permanent residents and New Zealand citizens.

Renters and social housing

The Government is providing $59.4 million over four years to community housing providers delivering social housing for 4,000+ young people aged 16–24 at risk of, or experiencing, homelessness. A further $100 million is released from the Housing Australia Future Fund to improve housing for First Nations Australians in remote communities. Commonwealth Rent Assistance has increased by more than 50 per cent in maximum rates since March 2022 — a cumulative measure rather than a new one, but a meaningful one for the 1.4 million households receiving CRA.

Industry estimates the Government’s strengthened build-to-rent tax measures will support around 80,000 new rental homes over the next decade, including up to 1,200 affordable homes in the near term.

08 — Health
Healthcare, Medicare & cheaper medicines

Health spending continues its long ascent. The function will absorb $136.9 billion in 2026–27, around one-sixth of total government expenditure, with several major commitments locking in recurrent costs.

Public hospitals: a $25 billion uplift

The Government is providing an additional $25 billion over five years from 2026–27 for public hospitals under the new National Health Reform Agreement (NHRA) Addendum, taking total Commonwealth funding to the public hospital system to $220.3 billion over five years. The Addendum includes $221 million in 2026–27 specifically for the ACT, NT and Tasmania to reflect their cost challenges, and $92.8 million for digital health reform.

Medicare Urgent Care Clinics made permanent

The 137-clinic Medicare Urgent Care Clinic network — which has delivered almost 3 million free bulk-billed visits since 2023 — is being made a permanent feature of Australia’s health system, with $1.8 billion over five years and $580.2 million per year ongoing. By July 2026, four in five Australians will live within a 20-minute drive of a Medicare UCC.

Bulk billing

The Government has now invested $11.4 billion to lift bulk billing, with a target of 9 in 10 GP services bulk billed by 2030. Since the bulk billing reforms commenced on 1 November 2025, 3,761 practices have registered as fully bulk billing — including 1,420 practices that had previously been mixed billing. The national bulk billing rate has climbed to 81.4 per cent, an increase of 4.3 percentage points year-on-year.

Cheaper medicines

The Budget provides $5.9 billion for new and amended Pharmaceutical Benefits Scheme listings, covering treatments for cystic fibrosis, chronic kidney disease, multiple cancers, multiple sclerosis, and more. COVID-19 oral antivirals are permanently subsidised through the PBS. The RSV vaccine Arexvy® is added to the National Immunisation Program for older Australians at a cost of $449.3 million, with no out-of-pocket cost to patients.

Dental services and mental health

For the first time, Public Dental Services for Adults will be permanently funded ($431 million, $107.8 million per year ongoing). Mental health receives $277.5 million for a 12-month extension of the National Mental Health and Suicide Prevention Agreement, with continued investment in Medicare Mental Health Centres and headspace clinics.

The trade-off: Modernising Private Health

To fund part of this, the Government is removing the age-based uplift of the Private Health Insurance Rebate from 1 April 2027, saving $3 billion over four years (and $1 billion per year ongoing). The savings will be redirected into aged care. The rationale is intergenerational equity: the age-based uplift overwhelmingly benefited older, generally wealthier policyholders. For private health insurance customers in older age bands, premiums will effectively rise after rebates.

09 — Aged care
Aged care reform

Aged care emerges as one of the clearer winners. The Government is investing $606.5 million over four years in new capital subsidies for providers building or expanding residential aged care accommodation, expanding the Specialist Dementia Care Program, and broadening the Hospital to Aged Care Dementia Support program from 11 to 20 locations.

A $1.1 billion provision is set aside for future increases to the Accommodation Supplement and additional payments for homes with more than 60 per cent supported residents — the Government’s response to the Residential Aged Care Accommodation Pricing Review.

For home-based care, the Government is providing $1 billion to make personal care services (showering, dressing, mobility support) free of charge in the Support at Home program, alongside clinical care. A further $389.8 million over four years funds program refinements and brings forward release of Support at Home program places. Another $565.1 million strengthens regulatory, governance and workforce supports.

For families navigating aged care decisions, the changes are material: increased capacity, free personal care, and a more structured Support at Home program backed by additional public investment.

10 — NDIS
Returning the scheme to its original intent

The single largest savings measure in this Budget — and arguably the most politically sensitive — concerns the National Disability Insurance Scheme. Without intervention, the NDIS Actuary projected scheme payments would increase by a further $13.9 billion over the five years from 2025–26. The Government’s reforms in this Budget are projected to reduce growth in NDIS payments by $37.8 billion over four years relative to those updated projections.

What changes

The Government’s stated objective is to restore the NDIS to its original purpose: supporting people with permanent and significant disability. The reform package has four pillars:

• Quality and supports: $49.4 million for the NDIA to commission plan management, support coordination and Supported Independent Living services, with differentiated pricing for unregistered providers.
• Eligibility: A standardised, evidence-based assessment of functional capacity will determine access, commencing 1 January 2028. A $19.2 million Technical Advisory Group and Disability Representative Organisation consultation process is being established.
• Plan reassessments: Tightened criteria around reassessments, which have averaged a 20 per cent increase in plan value. New Framework Planning to deliver more equitable, consistent participant plans from 1 April 2027.
• Foundational Supports: A $3 billion provision over five years, to be matched by states and territories, to deliver supports outside the NDIS. This sits alongside the Commonwealth’s $2 billion contribution to the $4 billion Thriving Kids program.

The Government is at pains to note that the NDIS will continue to grow each year and will remain Australia’s largest social program outside the Age Pension. But the structural intent is clear: slow the rate of growth, tighten eligibility, and shift some services into a separate, less expensive Foundational Supports system delivered with the states.

For NDIS participants, the changes will produce uncertainty and, for many, anxiety. For state and territory governments, the agreed cap of 8 per cent on the NDIS escalation rate from 1 July 2028 will reduce their contributions by $2.8 billion over two years from 2028–29. For the budget, the NDIS becomes the single biggest source of medium-term structural improvement.

11 — Business
Business, innovation & productivity

The Budget’s business and productivity package contains more than $3.5 billion in new measures designed to lower the tax burden on business and unlock investment.

Loss carry-back and loss refundability

From 1 July 2026, the Government is introducing a permanent two-year loss carry-back for all companies with turnover up to $1 billion. Companies with a tax loss can receive a refund of tax paid in prior years, providing crucial cash flow when conditions deteriorate. Treasury expects up to 85,000 companies a year to benefit. The measure costs $2.3 billion over five years.

From 1 July 2028, a separate loss refundability regime will apply to start-ups with turnover under $10 million in their first two years of operation. Eligible start-ups can convert losses into a refundable offset, capped at the value of FBT and wage withholding paid for Australian employees.

Permanent $20,000 instant asset write-off

The $20,000 instant asset write-off — extended annually for years — is finally made permanent from 1 July 2026 for businesses with turnover up to $10 million. Around 4.1 million businesses are eligible. In 2023–24, around 300,000 businesses used the IAWO, writing off an average of $14,200 per business and more than $4.2 billion of assets in total.

Venture capital and R&D

The Venture Capital Limited Partnership (VCLP) and Early Stage Venture Capital Limited Partnership (ESVCLP) caps are being substantially raised: VCLP investee asset size cap rises from $250 million to $480 million; ESVCLP fund size rises from $200 million to $270 million; ESVCLP tax-exempt cap rises from $250 million to $420 million.

The Research and Development Tax Incentive is being reformed and better targeted. The intensity threshold drops from 2 per cent to 1.5 per cent for higher offsets, and the maximum expenditure threshold rises from $150 million to $200 million. Refundable offsets become available to firms with turnover up to $50 million, limited to firms operating for less than 10 years. These changes save $650 million while unlocking an estimated $400 million in additional R&D by young firms each year.

Tariff simplification and PAYG reform

More nuisance tariffs are being removed. From 1 July 2027, small and medium businesses can opt in to monthly PAYG instalments using ATO-approved dynamic calculations embedded in accounting software — reflecting real-time business conditions rather than back-dated estimates.

The Government’s productivity package as a whole is forecast to cut compliance costs by $10.2 billion per year and contribute around $13 billion per year to long-run GDP via state-led National Competition Policy reforms.

12 — Energy
Energy, climate & the net zero transition

This is a Budget that doubles down on renewables as a resilience measure as much as a climate measure. The Government is leveraging existing vehicles — the Capacity Investment Scheme, Rewiring the Nation, Cheaper Home Batteries — to accelerate the energy transition, while also responding to the oil shock with measures aimed at fuel security.

The strategic argument

Treasury’s analysis is sharp: in the June quarter 2022, black coal and gas set the wholesale electricity price in the National Electricity Market 44 per cent of the time. By the March quarter 2026, they did so only 25 per cent of the time. The ACCC has found that households with rooftop solar and a home battery have electricity bills around 40 per cent lower than purely grid-supplied customers. High-price events in the NEM dropped 82 per cent year-on-year in the September quarter 2025.

The implication: every new household battery, every additional solar installation, every grid-scale renewable project reduces Australia’s exposure to the kind of fossil fuel shock that is currently driving inflation. The Government’s net zero strategy is being explicitly reframed as energy sovereignty.

Key measures

• Cheaper Home Batteries: An additional $7.2 billion provision over the medium term, building on the more than 370,000 batteries already installed.
• Capacity Investment Scheme: Expansion (specific figures not for publication for commercial reasons).
• EV charging: $40 million to accelerate kerbside and fast-charging infrastructure.
• National Electricity Market reform: Implementation of recommendations from the NEM Review panel, including the Electricity Services Entry Mechanism (ESEM) and Market Making Obligation (MMO).
• Domestic Gas Reservation: A new mechanism to provide Australians with greater energy sovereignty and protect domestic supply.
• Fuel security: $44.5 million in new fuel security and resilience measures.
• Future Made in Australia: Continued support for low-carbon liquid fuels, green aluminium (Boyne Smelter, Whyalla), and the Boyer Mill transition.

The total reported new net zero spending in this Budget exceeds $12 billion over the forward estimates across the five-part classification framework (emissions reduction, industries and skills, climate adaptation, international leadership, government capability).

Environmental approvals

The Government is investing $500 million to implement its 2025 EPBC Act reforms. A new National Environmental Protection Agency will commence from 1 July 2026 as a statutory enforcement body. $105.9 million is being deployed for AI-enabled environmental approvals; $47.6 million progresses bilateral agreements with states; $36.9 million expands the Nature Repair Market; and $28 million supports forestry operations under Regional Forest Agreements. Streamlining is estimated to reduce regulatory burden by up to $6.9 billion per year.

13 — Defence
Defence & national security

The 2026 National Defence Strategy delivers an additional $14 billion over four years and $53 billion over the next decade — making defence one of the fastest-growing functions in the Budget. Defence expenses are forecast to grow 18.8 per cent over 2026–27 to 2029–30.

The 2026 Integrated Investment Program

Built on lessons learned from Ukraine and the Middle East, the 2026 Integrated Investment Program prioritises autonomous and uncrewed systems, long-range strike capabilities, and integrated air and missile defence. Australia’s nuclear-powered submarine acquisition continues, alongside the Mogami-class frigates and development of the Henderson Defence Precinct in Western Australia (with $12 billion committed at MYEFO 2025–26).

Wider security

The Australia-Indonesia Treaty on Common Security receives $33.2 million; $25.3 million deepens engagement with India; $187.8 million over four years (and $49.2 million per year ongoing) enhances Pacific engagement. Consular services receive $60.5 million. Veterans’ health and Royal Commission implementation receives $583.4 million in further commitments.

In the wake of the Bondi terror attack of 14 December 2025, the Government has committed funds for Home Affairs to implement legislative reforms to combat hate, extremism and terrorism, strengthen social cohesion and progress firearm reforms. A National Gun Buyback Scheme has been provisioned in the Contingency Reserve, pending negotiations with the states.

Critical minerals also become a national security priority. The Government has established a Critical Minerals Strategic Reserve drawing on $1 billion from the existing $5 billion Critical Minerals Facility, with an initial focus on antimony, gallium and rare earth elements. $150 million is set aside for selective stockpiling.

14 — Education
Education, skills & training

Total education expenses are estimated to grow 11.5 per cent over the period 2026–27 to 2029–30, with higher education, government schools and non-government schools all rising in real terms.

Schools and universities

Funding for both government and non-government schools rises through bilateral agreements under the Better and Fairer Schools Agreement. Non-government school funding is rising particularly fast (over $2.3 billion above expected over five years), reflecting enrolment growth and an increase in students attracting the “student with disability” loading. The Government is increasing compliance activity to ensure funding is directed accurately based on need.

Apprenticeships and skills

The Australian Apprenticeships Incentive System is being reformed, with $266.2 million in savings over four years from redirecting employer incentives toward small and medium employers and Group Training Organisations. Free TAFE continues, with at least 100,000 Free TAFE and VET places per year from 2027 — a structural commitment given the Fee-Free TAFE Skills Agreement was previously a time-limited measure. Jobs and Skills Australia receives $35.2 million over four years to continue its labour market and skills advice function.

Student debt

The 20 per cent reduction on outstanding HELP debt balances announced in the 2024–25 MYEFO has now flowed through (received Royal Assent 2 August 2025). This Budget does not deliver further across-the-board student debt reductions, though it continues the more generous student loan indexation arrangements introduced in earlier budgets. HELP debt outstanding at fair value is estimated at $40.8 billion at 30 June 2026, with the average repayment time at 10.2 years.

Skilled migration recognition

The Government is investing $85.2 million to deliver faster skills assessments for migrant trades workers and accelerate occupational licensing — changes that could shave up to 6 months off workforce entry and facilitate up to an additional 4,000 skilled trades workers per year.

15 — First Nations
First Nations & Closing the Gap

The Government commits $1.2 billion over five years to accelerate progress on Closing the Gap commitments. Headline measures include:

• Remote Jobs and Economic Development Program: Doubled from 3,000 to 6,000 new jobs via $299 million in additional funding.
• Aboriginal Community Controlled Health Services: $144.1 million in health infrastructure investment.
• Birthing on Country: $44.4 million extension, supporting 1,100 mothers and babies per year.
• 13YARN: $18.9 million to expand crisis support including a new text message service.
• Public hospitals: Almost $250 million for new co-designed programs to improve First Nations health outcomes, with $200 million matched by states.
• Northern Territory homelands: $160 million for repairs and maintenance of critical housing and essential infrastructure.
• Housing Australia Future Fund: Additional $100 million released for remote Indigenous housing.
• Cost of living in remote stores: $27.4 million expanding the Low-Cost Essentials Subsidy Scheme to all 225 remote stores, plus $32.7 million expanding the Store Efficiency and Resilience Package.
• Family violence: $218.3 million for a national network of up to 40 Aboriginal Community-Controlled Organisations under the Our Ways – Strong Ways – Our Voices plan.
• Education: $113 million including extensions to the Clontarf Foundation and Indigenous Boarding Provider grants programs.

16 — Bottom line
The fiscal position

Underlying these policy choices is a fiscal story that is more disciplined than recent commentary often suggests. The 2026–27 underlying cash deficit is $31.5 billion (1.0 per cent of GDP), an improvement of $2.8 billion on MYEFO. By 2029–30, the deficit falls to $25.3 billion (0.7 per cent of GDP) — less than half the MYEFO projection.

Across the forward estimates, the budget position has improved by a cumulative $44.9 billion since MYEFO. Across the eight years to 2029–30, it has improved by more than a quarter of a trillion dollars compared with the position the Government inherited at the 2022 PEFO.

Savings and reprioritisations

The Government’s $63.8 billion of savings and reprioritisations in this update include the NDIS reforms, the removal of the age-based PHI rebate uplift ($3 billion), the extension of consultant and labour-hire spending reductions ($2.7 billion in 2029–30 alone), reforms to apprenticeship incentives ($266 million), and a range of climate and energy reprioritisations totalling roughly $2.2 billion over 14 years. Real payments growth averages 1.1 per cent over the four years to 2029–30 — less than half the 30-year average.

The medium-term outlook

The Budget is projected to return to balance in 2034–35 and a surplus of 0.8 per cent of GDP in 2036–37, supported by structural savings and tax reform. Gross debt peaks at 35.8 per cent of GDP in 2028–29 and then declines steadily to 27.2 per cent by 2037 — comfortably below every major advanced economy. The IMF projects Australia’s gross debt-to-GDP to be about 38 percentage points below the Euro Area, 50+ below the UK, and 75+ below the United States in 2027.

For all the policy ambition in this Budget, the fiscal story is one of slow, structural improvement rather than dramatic correction. The risks to that trajectory — a more severe Middle East scenario, faster NDIS growth than projected, or slower productivity than the 1.2 per cent long-run assumption — are real, but the buffer the Government has built compared with international peers is substantial.

17 — Outlook
Winners, losers & the path ahead

So who comes out ahead, and who pays for what?

The winners

• Working Australians, especially low- and middle-income earners, get a permanent $250 tax offset, a $1,000 instant deduction, and continued bracket-creep relief through legislated rate cuts.
• First home buyers face a tax system that, for the first time since 1999, is no longer tilted to make established homes more attractive to investors than to occupiers — though the effects accumulate over years, not months.
• Renters gain modestly through expanded build-to-rent settings and continued CRA increases. The biggest effect is indirect — more supply over time.
• Patients — particularly those using Medicare UCCs, bulk-billing GPs, the PBS for new listings, and adult public dental services.
• Older Australians who use aged care — free personal care in Support at Home, more accommodation supplements, more dementia care.
• Small business — permanent $20,000 IAWO, loss carry-back, simpler PAYG, expanded VC incentives, more responsive R&D incentive.
• First Nations Australians — $1.2 billion over five years, doubled remote jobs program, dedicated First Nations health schedule in the NHRA.
• The defence industry and the broader security sector — $53 billion over the decade.

Those who pay more

• Property investors acquiring established residential properties after Budget night — negative gearing is severely curtailed, CGT discount replaced.
• Higher-income earners using discretionary trusts for income splitting — 30% minimum tax from 1 July 2028.
• Higher-income older private health insurance customers — age-based PHI rebate uplift removed from 1 April 2027.
• Some NDIS participants — tighter eligibility, more rigorous functional capacity assessments, reset plan budgets.
• Foreign investors — extended ban on established dwellings, increased screening fees.
• Apprenticeship employer incentive recipients at larger employers — redirected to small and medium employers.

The likely macroeconomic impacts

If Treasury’s central forecasts hold, the Budget should support a soft landing through the oil shock. Real GDP slows to 1¾ per cent in 2026–27, picks up to 2¼ per cent in 2027–28, and stabilises near trend thereafter. Unemployment drifts up modestly to 4½ per cent. Inflation peaks around 5 per cent then returns to the RBA’s 2–3 per cent target band by mid-2027. Wages continue to grow above their long-run average.

The tax reform package is forecast to be roughly revenue-neutral over the forward estimates, with the trust and CGT measures funding the WATO. Housing demand from highly-leveraged investors moderates. Investor capital tilts toward new builds. The Local Infrastructure Fund unlocks supply. The bulk-billing rate climbs further. NDIS growth slows. The deficit narrows. Debt peaks earlier and lower.

The risks

Multiple things could derail this picture. A more severe Middle East conflict would push oil prices toward US$200 per barrel, inflation above 7 per cent, unemployment to 5 per cent, and real GDP half a per cent lower for two consecutive years. The legislative passage of the negative gearing and trust reforms — both prospective and contentious — through the Senate is not guaranteed. NDIS savings depend on functional capacity assessments and Foundational Supports rolling out as designed by 2028; both are major implementation challenges. State and territory cooperation on planning, zoning and the National Construction Code is essential for the housing pipeline to deliver. And productivity growth — assumed to converge to 1.2 per cent per year over five years — is the largest single assumption driving medium-term projections.

The verdict

Taken whole, the 2026–27 Budget is more ambitious than its presentation suggests. The Government has used a moment of acute global uncertainty to do something Australian governments have largely declined to do for two decades: rebalance the tax system away from concessions for asset income and toward relief for income from work. It has paired that rebalancing with the largest permanent increase in the effective tax-free threshold since 2012 and the most significant intervention in housing supply policy in a generation.

Whether the changes hold depends on three things. First, the Government must win the political fight over negative gearing, CGT and trust reform — fights that, by being delayed to 1 July 2027 and 1 July 2028, will be fought through and after the next election. Second, the implementation of the NDIS reforms must deliver the projected savings without leaving participants worse off. Third, the global environment must not deteriorate to the point where central forecasts give way to the downside scenario.

For Australians watching from outside the Budget lock-up, the practical consequences are these: from 1 July 2026, fuel excise reverts but a lower bottom tax rate kicks in and the $20,000 instant asset write-off is locked in permanently. From 1 July 2027, the WATO begins, the bottom rate drops again, negative gearing is restricted to new builds, and CGT changes for new gains. From 1 July 2028, the minimum tax on discretionary trusts commences. And over the decade, more first home buyers should enter the market, more homes should be built, and the share of income tax paid by Australian workers — relative to those earning from assets — should fall.

It is, in short, a budget that asks Australians to trust that structural reform delivered over years can outlast the political cycle. Whether it does is the question that will define this Parliament.