May 2026
The Federal budget was handed down last night by the Labor government with Treasurer Jim Chalmers and his government presiding over the first full budget since their landslide election victory last year. The key message and selling point for the government is putting money back in workers’ pockets and increasing taxes on investors.
This budget comes on the back of three consecutive Reserve Bank of Australia rate increases, still untamed inflation complicated by the war in Iran, the need to politically to provide additional of cost-of-living relief to households, all whilst searching high and low for savings to try and maintain a balanced budget.
The centrepiece of this budget is “resilience and reform” – significant changes to taxes on investors in an attempt to make the tax system fairer for young Australians whilst focused of cost-of-living relief. The change to taxes on investors, which may appear fair to some, will create investor uncertainty potentially increasing volatility in both shares and property assets.
Key features include:
- $63.8 billion in savings – the largest savings package on record
- Budget improved $44.9 billion over forward estimates vs the mid-year forecasts; $263.8bn better than inherited in 2022
- Gross debt peaks at 35.8% of GDP – lower and earlier than projected, $18bn below the mid-year projections in 2026–27
- Deficit of $31.5bn in 2026–27; budget forecast to return to balance by 2034–35
- Real spending growth averages just 1.5% over eight years to 2030 – the lowest in 35 years
- Every dollar of tax receipts upgrades returned to the bottom line for the second consecutive update
- AAA credit rating retained from all three major agencies; IMF ranks Australia 3rd highest budget balance among G20 nations for 2027.
The Detail:
- Oil shock response – $14.8 billion
- $7.5bn Fuel & Fertiliser Security Facility; $3.2bn Australian Fuel Security Reserve (50+ days of diesel/jet fuel)
- Fuel excise halved: 32c/litre cut saving ~$23 per tank; heavy vehicle road charge zeroed for 3 months20% domestic gas reservation for LNG exporters from 1 July 2027; $1.1bn Cleaner Fuels Program
- ACCC penalties doubled to $100m; weekly price monitoring across 190+ locations
- Cost of living – tax cuts and healthcare
- Income tax rate (16%) cut to 15% from 1 July 2026, then 14% from 1 July 2027
- Working Australians Tax Offset: up to $250/year for 13.3m workers from 2027–28 ($6.4bn cost)
- $1,000 instant tax deduction for workers (no receipts); combined benefit up to $2,816/year by 2028
- $25bn additional public hospital funding over 5 years; $5.9bn new PBS medicines
- $1.8bn to permanently fund 137 Medicare Urgent Care Clinics; public dental funded for the first time
- Housing – record $47 billion total investment
- $2bn Local Infrastructure Fund supporting up to 65,000 new homes over a decade
- 5% deposit scheme expanded; ~75,000 first home buyers assisted; foreign buyer ban extended to June 2029
- Negative gearing restricted to new builds from 1 July 2027 (existing properties fully grandfathered)
- CGT 50% discount replaced with cost-base indexation + 30% minimum tax from 1 July 2027; Age Pension recipients exempt
- Tax reform and productivity – most significant package in 25 years
- Business tax ($3.5bn+): permanent 2-year loss carry-back (85,000 companies); start-up loss refundability; $20,000 instant asset write-off permanent
- Discretionary trusts: 30% minimum tax from 1 July 2028 (raises $4.5bn); super funds, estates and charities exempt
- Super: 30% tax on balances >$3m legislated; performance test reform to remove investment barriers; $86.3m for fraud prevention
- $10.2bn/year regulatory savings; ~1,000 tariffs abolished; environmental approvals overhauled (up to $6.9bn/year in savings)
- AI & innovation: $70m AI Accelerator; memorandums of understanding with Anthropic and Microsoft; $1.5bn for CSIRO, Space Agency and Square Kilometre Array
- Savings – $63.8 billion
- NDIS reform – $37.8bn: returning scheme to original intent; clearer eligibility; $821m fraud enforcement; $2bn Thriving Kids program for children aged ≤8
- Spending restraint: external labour, travel and property costs cut; uncommitted program funds returned
- Defence and security –
- $53bn (10 years) for defence: autonomous systems, long-range strike, nuclear submarines, Mogami frigates
- $604m Bondi attack response: counter-terrorism, Jewish community security ($102m), gun buyback
- $800m for veterans; $3.7bn aged care (5,000 new beds/year; personal care made free under Support at Home)
- $1.2bn Closing the Gap; remote jobs doubled; $4.4bn+ to end violence against women; PPL extended to 6 months
- $11.8bn in higher indexed social security payments (Age Pension, disability, carers) to offset oil-shock inflation
- Aged care, superannuation and retirees –
- Up to 5,000 new residential aged care beds incentivised per year
- $1bn to make personal care services (showering, dressing) free under Support at Home
- $389.8m to refine Support at Home access, assessments and end-of-life pathways
- $565m for regulatory, workforce and quality improvements
- Age Pension recipients exempt from the new 30% minimum CGT tax – an important carve-out
- All existing investment properties held before Budget night (7:30pm 12 May 2026) are fully grandfathered
- Complying super funds entirely excluded from the discretionary trust minimum tax
- Main residence exemption completely unchanged
- $11.8bn in higher indexed social security payments (Age Pension, disability, carers) to shield vulnerable Australians from the oil-shock inflation
- Social –
- $1.2bn (5 years) for Closing the Gap: remote jobs program doubled (3,000 to 6,000); housing; community support
- $4.4bn+ for National Plan to End Violence against Women and Children since 2022; $182.6m to reform Child Support Scheme
- Paid Parental Leave expanded to six months from 1 July 2026 (eligible families $14,000 better off vs 2022)
- $2.2bn to upgrade Services Australia: myGov, cybersecurity, frontline staffing
Key numbers at a glance
Some illustrative charts are provided below.
Written by Christopher Lioutas
Chairman – Harbourside Investment Management
