Australian Federal Budget 2026

Federal Budget 2026-27: Navigating volatility with some reform

The 2026-27 Budget, delivered against a volatile economic backdrop that few could have predicted in last December’s Mid-Year Economic and Fiscal Outlook, pairs short-term cost-of-living and fuel security relief with a tax reform package the Treasurer described as “the most significant transformation of Australia's tax system in more than a quarter of a century”.

The tax package, framed by the Government as a rebalancing of the system towards wage earners and future generations, contained the expected measures - curbs on negative gearing and the CGT discount, a minimum tax on discretionary trusts (albeit with unexpected design features for distribution to corporate beneficiaries), as well as the permanent instatement of the $20,000 instant asset write-off, alongside a number of genuine surprises: taxation of gains accruing on pre CGT assets from 1 July 2027, the reintroduction of loss carry-back, loss refundability for small start-up companies, and substantive reform of the Research and Development Tax Incentive, the latter in response to the Ambitious Australia: Strategic Examination of Research and Development finalised in early 2026.

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Beyond the tax reform package, the 2026-27 Budget commits substantial new spending.

An additional $25bn over five years for public hospitals

A $7.5bn Fuel and Fertiliser Security Facility, and a 20% domestic gas reservation from 1 July 2027

Housing receives a $2bn Local Infrastructure Fund and an extended foreign purchaser ban

Health and aged care attract some of the largest commitments:

An additional $25bn over five years for public hospitals

$1.8bn to make Medicare Urgent Care Clinics permanent

$5.9bn for new PBS listings, and $3.7 bn for aged care

NDIS reforms aim to reduce payment growth by $37.8bn over four years.

The 2026–27 Federal Budget lands at an awkward moment for Treasurer Jim Chalmers: the Middle East oil shock has pushed forecast headline inflation back to 5% through the year to the June quarter 2026, real GDP growth is expected to slow to 1.75% and the recovery rests on the optimistic assumption that global oil prices begin to decline from mid-2026 and stabilise a year later.

The fiscal position is presented as a story of restraint - $63.8bn in identified savings, an underlying cash deficit of $31.5bn (1% of GDP), and a projected return to balance in 2034–35 - though gross debt still nudges $1.05tn.

A return to surplus more than a decade away is a commitment binding no-one, and the major structural reforms in this Budget begin only after the next election. The settings are coherent on paper; whether they survive contact with drafters, consultation, and the political cycle is another matter.