Inside PM’s secret meetings to plot a budget bombshell – and the final decision made weeks ago

If federal cabinet is the core of power in Canberra, its little-known “priority and delivery committee” is the cabinet’s most exclusive club.

It’s here that the troika of Anthony Albanese, Jim Chalmers and Katy Gallagher started to plot Labor’s U-turn on taxing assets and wealth.

The cabinet subcommittee, smaller than the national security committee or budget razor-gang, meets as needed at The Lodge or in Albanese’s office, either in formal settings with department bosses or just for chats.

Back in November, the trio started looking ahead to this year and beyond. Albanese set a hard November deadline on passing contentious environmental laws. They were working with a clean slate.

In the weeks and months after winning a surprisingly large majority at the election in May, the prime minister began to think about going big on housing affordability. Maybe even returning to negative gearing, a tax deduction that has taken on symbolic status as property prices outpaced wages.

In that campaign, he snapped at journalists who asked if he had plans to scrap negative gearing and the capital gains tax discount. Asked on April 9 if he would guarantee no changes, he said: “Yes. How hard is it? For the 50th time.”

But calculations had changed by year’s end, according to ministers and others in the Labor machine familiar with deliberations who were interviewed for this story.

In a press club speech just after the election, Albanese declared the election manifesto was the “foundation of our mandate”. This was designed to temper MPs’ temptations to rattle voters with fresh policies that went beyond modest election pledges.

Crucially, he added: “They are not the limits of our responsibilities or our vision.”

After winning a long-running dispute on environmental approvals, Albanese began to consult his inner circle. How could Labor inject purpose into its agenda?

In conversations with ministers Richard Marles, Penny Wong, Mark Butler, Tim Ayres, and his staff, Albanese made two calls.

Australians, particularly middle-aged and younger voters, were feeling pessimistic and disenfranchised. To get ahead of the populist rage engulfing the Democrats and UK Labour, Albanese determined that he had to make a daring pitch to fix the housing market.

He knew the Greens and Max Chandler-Mather were onto a winner campaigning on housing affordability before Labor successfully cast the Greens as radical. A clutch of Labor-Greens electorates were at risk if Labor did not act.

In one of their small group conversations, Albanese asked Chalmers and Gallagher to spend summer working up options on negative gearing, capital gains tax and trusts.

His plan was to start building the argument for change and justifying a blatant broken promise in a press club speech on intergenerational inequality that he planned to deliver around Australia Day.

That was before two Islamic extremists shot and killed more than a dozen Jews at Bondi Beach in the worst terrorist attack on Australian soil. Albanese’s clunky and indecisive response upended plans and sunk his approval ratings.

The populist backlash Albanese was thinking about in November would gather unseen momentum. One Nation catapulted above the Coalition in opinion polls. Hanson’s support was coming from the conservative side. Yet Labor figures were nervous that about one in 10 Labor voters were drifting into Hanson’s column.

What appeared in late 2025 as a more benign time to advance a new agenda soured further. Donald Trump’s rash decision at the end of February to strike Iran sent fuel prices soaring. Reversing expectations of sunnier economic times, the Reserve Bank would hike rates three times to dampen already-rising inflation.

Reform advocates in the caucus were worried that the government would shy away from its housing agenda after Bondi dimmed the national mood and focus turned to hunting oil supplies.

In March, Chalmers said he did not see the war “as a reason to go slower but a reason to go further”. Critical to pushing ahead, Chalmers said, was coming to an agreement with colleagues.

By the time Albanese delivered a delayed press club address on April 2, he had made up his mind.

In an interview with this masthead, Chalmers said the war had forced some changes to the budget but added that “the thing that might surprise people is how much we still intend to get done”.

The dynamic between the wily 63-year-old prime minister from the socialist left and the ambitious, right faction treasurer, 48, is closely watched. The pair share a birthday but it’s often said that they do not share the same zeal for reform, following the pattern of treasurer-prime minister relationships in the Hawke and Howard governments.

Chalmers hinted at his desire for change. “I’m an impatient person,” he told this masthead. “I try and do as much as we can as soon as we can, recognising that, in one way or another, the clock ticks on every government.”

Albanese’s allies chafe at suggestions that Chalmers, who was credited with driving the stage 3 tax cut reversal last term, is the reform powerhouse of the cabinet.

They say that calling the prime minister unambitious is simplistic and wrong. His role, they argue, is to absorb all the ideas of the labour movement and steer it in the right direction at a pace voters can stomach.

Gallagher, the Canberra-based senator and finance minister, is Chalmers’ closest portfolio partner. She’s also one of Albanese’s closest confidantes.

In her office down the corridor from the treasurer, Gallagher emphasised Albanese’s role in the budget reform agenda.

“He’s the leader of the government, so if it wasn’t for him we wouldn’t be doing it,” she said. “He’s the PM and he takes all the risk, doesn’t he? Others take some of it, and we all have a responsibility to explain it, but ultimately, it’s him.”

“If he believes in something, he’s very difficult to beat. He connects emotionally with issues as well as politically and intellectually.”

Asked when Albanese decided to renege on election pledges, Gallagher said there was no lightbulb moment.

“You know what he’s like: he’s thinking about 100 things every day,” she said. “My guess is he weighed that up for several months in his own head, thinking about whether or not [this] should be done. I don’t think he’s given enough credit for having an appetite for reform.”

A cynical reading of Albanese’s next move is that he may have swung a record 94-seat haul in part by concealing the appetite in the cabinet to pursue tax hikes in a second term.

Much has changed since Bill Shorten failed to persuade the public on the tax concession crackdown in 2019. Shorten framed the agenda in terms of taking on the top end of town. Albanese argues that change is needed to maintain social harmony.

Labor sources stress that Scott Morrison and Josh Frydenberg had the power of incumbency to fight the plans. Frydenberg costed the Labor policies at $387 billion and recruited interest groups to campaign.

Now, Angus Taylor is struggling for oxygen after a bad result in the Farrer byelection.

Tim Wilson will turn any higher taxes on trusts into a campaign against family wealth creation as he mulls policies to drastically cut small business taxes.

More than half the voters are Millennials and Generation Z, looking to buy a home.

“The lesson from the reversal on the stage 3 tax cuts is that if you’re doing the right thing and put the case, then the whole News Corp campaign on a broken promise can be beaten,” one minister said.

Economists say that the housing package will have only a modest effect on prices. Grandfathering changes to negative gearing, as expected, may “exacerbate intergenerational inequality”, the Grattan Institute has said.

Independent economist Saul Eslake argues that Albanese’s “adventurous” reforms will be a step in the right direction, though he thinks they fall well short of the productivity reforms of the Hawke and Howard eras.

“They obviously are taking a political risk,” he said.

Eslake said there was a chance that the politics had changed so dramatically since 2019 that Albanese might actually win votes for shifting his stance on tax concessions that have long been blamed for worsening the housing crunch.

“I certainly hope so,” Eslake said, arguing that a successful reform sales job might open the door to more daring reform on things like GST and income tax.

One Nation’s huge win

• Polling booth analysis: Three key lessons from voters’ total rejection of the Liberal Party
• Rob Harris in Farrer: It took Pauline Hanson 30 years, and she’s only just getting started
• James Massola’s analysis: This is no ordinary victory — it’s a political earthquake
• History made: This seat has been held by the Coalition for all of its 77 years. Not anymore
• Full results: Every polling booth, every candidate across Farrer

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