Five-minute budget: Everything you need to know

Treasurer Jim Chalmers bills this as the “most important and ambitious” budget in decades.

Important, because it comes amid the economic turmoil wrought by the Iran war as interest rates spike and the government spends tens of billions of dollars to prop up the economy. It also boosts fuel security, cuts $36 billion from the National Disability Insurance Scheme (NDIS) and hands out $2.5 billion in fuel excise cuts to lower the price of petrol and diesel.

Ambitious, because the government is pressing ahead with significant tax reforms, winding back popular tax incentives in negative gearing and capital gains discount.

Here’s the budget breakdown.

Tax

Capital gains: An inflation-based model, intended to only tax the “real” value of the asset and the real profit, will be reintroduced. It will apply a 30 per cent tax rate on capital gains starting in July 2027. However, investors in newly built homes will still be able to choose to apply the 50 per cent discount on capital gains tax. Previously, when Australian residents sold assets, they could reduce their capital gains bill by 50 per cent if they owned them for 12 months or more.

Negative gearing: The housing investment incentive will be restricted to new builds, which the government said would encourage building of new dwellings to address the housing crisis. Previously, investors could deduct losses on an investment, such as a rental property, from their taxable income. The government said the tax benefits are concentrated among higher income earners and younger people are finding it harder to buy a home.

Income tax cuts: Billed as the working Australians tax offset (WATO), a tax cut of $250 will be delivered from July 1 next year. There is also a cut of around $5 a week for those earning more than $45,000 from July 1, announced in last year’s budget. For those on the lowest tax bracket, earning from $18,201 to $45,000, tax rates will fall from 16 per cent to 15 per cent.

Instant asset write-off: Small businesses with an annual turnover of less than $10 million will have a temporary write-off measure made permanent. The instant asset write-off limit was previously increased from $1000 to $20,000 on a temporary basis that was set to expire at the end of this financial year.

Family trusts: The government will impose from July 1, 2028 a minimum 30 per cent tax rate on discretionary trust distributions, removing a popular tax minimisation scheme for business owners and farming families. There are exemptions for fixed trusts, superannuation funds, special disability trusts, deceased estates and charitable trusts. Also excluded will be some farming enterprises and vulnerable minors.

Big numbers

The deficit: This financial year, the deficit is $28.2 billion, and will be $31.5 billion next year.

Economic growth: The global oil shock caused by the war in Iran is expected to slow economic growth. It will fall from 2.25 per cent at the end of June to 1.75 per cent through the 2026-27 financial year.

Inflation: Rising fuel prices have driven up inflation, which is forecast to rise from 4.6 pr cent to 5 per cent by the end of June – above the Reserve Bank’s target band of 2 to 3 per cent. That is based on a central forecast that assumes oil prices do not rise any more and fall to $80 a barrel by July 2027. However, inflation could hit 7 per cent if the war drags on and oil reaches around $200 a barrel.

Real wages: Are expected to fall by 1.75 per cent in this financial year. The budget forecasts they will grow again by 1 per cent in 2026-27, and by another 1 per cent year after.

Total taxes: Will rise to $716.6 billion this year, and reach $756.3 billion next year.

Cuts

Chalmers said the budget delivers $26.1 billion in net savings, with several big ticket initiatives.

The NDIS: The scheme will be cut by $36.2 billion over four years by removing up to 300,000 people from the scheme. Budget figures show the scheme will grow from $53.8 billion this year to $56.1 billion next year. Annual funding will then go backward to $55 billion while changes are implemented, before returning to $56.2 billion in 2029-30.

Private health insurance: Subsidies for over 65s will be cut, with the removal of the private health insurance rebate aged-based uplift, saving $3 billion over the next four years.

Inland Rail: The ambitious Inland Rail freight line was originally slated to connect Brisbane to Melbourne. It will be halted at Parkes in NSW and work will focus on the southern half, slashing costs and reducing gross debt by $4.4 billion.

Public servants: The government has slammed the brakes on public sector wages, budgeting almost no increases, which will force staff freezes, redundancies and cost-cutting across departments.

Housing

Tax reform: The restriction of negative gearing to new builds and winding back of the capital gains tax discount as outlined above are designed to reduce the incentive for investors to compete against first home buyers.

Foreign investment: Foreign investors will be banned from buying established homes for an extra two years, until the end of the 2029 financial year.

Infrastructure: On the supply side, a $2 billion fund will be created for local councils and utility providers to build roads, water, power and sewerage systems. The fund is available to states and territories that commit to cutting red tape and freeing up land for development. The government says the fund will help support the building of 65,000 homes over 10 years.

Environmental approvals: $500 million will be allocated to streamline planning and construction approvals to accelerate housing development.

Health and aged care

Hospitals: As part of the federal government’s funding deal with the states and territories, $25 billion will go towards public hospitals.

PBS: More medicines will be added to the Pharmaceutical Benefits Scheme through a $5.9 billion investment.

Medicare Urgent Care Clinics: $1.8 billion will fund 137 bulk-billed walk-in centres over four years. After that, they will be funded with $500 million each year.

Aged care: The savings of almost $3 billion from cutting the private health insurance subsidy will be diverted to aged care to provide an extra 5000 beds per year and making showering, dressing and continence management free during at-home care. Aged care providers will be incentivised with $606 million over four years to expand accommodation.

Disability: $2 billion in funding will deliver the Thriving Kids program to support autistic children. $3 billion will deliver foundational supports outside the NDIS.

War

Treasury said the hit on the global economy and rise in inflation driven by the global oil shock would slow Australia’s economic growth, which is expected to fall from 2.25 per cent this financial year to 1.75 per cent in 2026-27.

It said while its central forecast expects inflation to peak at 5 per cent, this would rise to 7.25 per cent if the war drags on and the global oil price hits $200 barrel.

Fuel security: $14.8 billion will be spent on boosting the resilience of Australia’s fuel supply chain, including $3.2 billion to buy a publicly owned stockpile of 1 billion litres of jet fuel and diesel, $7.5 billion to help build extra storage and $1 billion to support local production of biofuel.

Fuel costs: A three-month cut to the fuel excise, and waiver for the heavy vehicle road user charge, will cost $3 billion in lost revenue.

Defence: An extra $53 billion will be spent over the next 10 years, including a five per cent increase to the spending rate over the next four years.

Get across all our coverage

• Winners and losers: This is who benefits from the budget, and who misses out
• Tax changes: Negative gearing, CGT, family trusts and how this will affect the property market
• Generational divide: Baby Boomers, Gen X, Millennials and Gen Z, this is what the budget means for you
• Shane Wright’s analysis: ‘The war against Iran is the dark cloud over this entire budget’

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