Economic Insights

On the macro front, this Budget is one of the more responsible which we have seen in recent years. It is mildly expansionary without being reckless, there is a clear intent to keep fiscal policy from cutting across the grain of monetary policy, and the cost-of-living measures are sensibly structured. Tax cuts for workers, healthcare support, fuel excise relief and homeowner provisions all work through the system rather than landing as direct cash handouts, which reduces the inflationary sting. Budget inflation forecasts broadly align with the RBA, with the RBA remaining marginally more conservative on GDP. For businesses, the picture is more complicated. There are genuine wins, but also trade-offs and a few measures that sound better than they are.

The fiscal numbers tell a disciplined story. Deficits sit at roughly 1% of GDP across the forward estimates, the position is $44.9bn stronger than the latest MYEFO position, and gross debt peaks at 35.8% of GDP. The Government has banked $63.8bn in savings, net policy decisions are positive for the second consecutive update, and average real payments growth of just 1.5% per year is less than half the 30-year average. A return to balance is projected by 2034-35 which, although a long way off, comes on the heels of a trajectory that is credible and the spending restraint should do the real work.

The household package centres on five rounds of tax cuts that sound headline-grabbing but are actually quite measured. The $250 Working Australians Tax Offset from 2026-27 is permanent and being targeted at labour income, rewards work rather than wealth. The $1,000 instant tax deduction (no receipts needed) is a long-awaited genuine simplification win for 6.2 million workers. Two already legislated rate cuts round out the package, and an average worker will end up a combined $2,816 better off annually versus 2023-24 settings. Critically, these will flow through the PAYG system rather than arriving as lump sums, dampening inflationary risk. The more than halving of fuel excise for three months ($2.9bn) is blunt but effective when petrol prices are front of mind. The key risk will be political pressure to extend it, as we saw in 2022. On wages, the cumulative $9,120 lift in the minimum wage over four Annual Wage Reviews is substantial, and the gender pay gap review across five female-dominated award sectors is a welcome structural shift.

Housing is where this Budget makes its boldest and most generational bet. Negative gearing is being limited to new builds from July 2027, and the 50% CGT discount will be replaced by an inflation-based discount with a 30% minimum tax on gains with minor exceptions. Existing holdings are grandfathered, and investors in new builds can still choose the old 50% discount, essential for confidence and for channelling capital towards supply. The Government estimates 75,000 additional owner-occupiers over the decade, which is plausible though the modelling will be contested. The $2bn Local Infrastructure Fund (up to 65,000 homes) and extended foreign buyer ban complement the income tax changes, but the real test remains construction capacity. Unless productivity in the building sector improves, supply-side subsidies risk feeding into costs rather than completions. These are the kinds of reforms that reshape the system for years to come, but they also carry legislative risk.

For businesses, loss carry back measures returning permanently is the standout measure, with up to 85,000 companies getting real cashflow resilience during downturns. The loss refundability for start-ups is conceptually sound but modest for very early-stage firms with few employees. The permanent $20,000 instant asset write-off finally removes the annual uncertainty that has plagued this measure for years. The R&D retargeting toward core experimental activity should reward genuine innovators, but firms currently claiming supporting activities will feel the squeeze. The 30% minimum tax on discretionary trusts from July 2028 is the most politically charged measure; it will raise roughly $4.4bn at maturity. Although the three-year rollover relief will help, affected families and small businesses need to start planning now. 

On productivity, the $10.2bn per year regulatory burden reduction is ambitious, but roughly half hinges on streamlining environmental approvals and housing reforms areas where delivery depends entirely on state cooperation. The Single National Market agenda (payroll tax harmonisation, national occupational licensing) has been promised for decades; if it actually lands, it has the potential to genuinely move the dial on productivity growth by letting labour and capital flow to where they're most needed. The energy market reforms allowing household solar and batteries to participate directly in the market for the first time could be transformative for competition and household costs. $1.5bn for research institutions and $70m in AI Accelerator grants round out a constructive package.

The Middle East conflict has produced the largest global oil supply disruption on record, and the $14.8bn Fuel Resilience Package is proportionate to the problem. A $7.5bn Fuel and Fertiliser Security Facility and the $3.2bn government-controlled fuel reserve which together with an expanded Minimum Stockholding Obligation lifts diesel and jet fuel reserves to 50 days of critical stocks. Together with $1bn in interest-free loans for manufacturing and logistics businesses, this package addresses both the immediate crunch and the structural vulnerability that allowed it. The 20% domestic gas reservation from July 2027 will be welcomed by domestic users, though the investment community will want clarity on how it interacts with existing contracts. The broader push, $1.1bn for low-carbon fuels, permanent EV tax concessions to reduce fuel dependence, and $55m to shift freight to rail and sea, is about building resilience so the next oil shock hurts less. That is the right instinct.

Healthcare is arguably the spending we should celebrate most. The additional $25bn for public hospitals brings five-year funding to a record $220.3bn. Making the 137 Medicare Urgent Care Clinics permanent is one of the clearest wins with almost three million free visits delivered, and four in five Australians within a 20-minute drive by July 2026. The $5.9bn in PBS listings and the cut to the general co-payment ($25, concessional rate frozen at $7.70 until 2030) will make a real difference for people managing chronic conditions. These are measures that will reduce long-term fiscal pressure by keeping people out of emergency departments.

The NDIS reforms are the single largest consolidation measure, $37.8bn in savings over four years through tighter eligibility, plan resets and stronger fraud controls. These savings ramp up significantly over the medium term, making them central to the Budget's fiscal credibility. In aged care, $3.7bn funds more beds, more home care and removes some personal care co-contributions. Paid Parental Leave rises to six months, the 3-Day Guarantee benefits over 87,500 families, and $1.2bn continues Closing the Gap commitments. Defence receives a record additional $53bn over ten years; significant, but the real test is whether Defence can absorb and execute at this scale. The $120bn infrastructure pipeline is maintained, with $8.6bn in new road and rail commitments.

This Budget does more right than wrong. The fiscal discipline is genuine, the cost-of-living measures are designed to work with monetary policy rather than against it, and the housing tax reforms are generational in scope. For businesses, loss carry back and the permanent instant asset write-off are practical wins, but the trust tax, CGT changes and R&D retargeting will create winners and losers, and the details will matter enormously.

The biggest risk will be execution and passage. The savings are back-loaded and the productivity agenda depends on state cooperation that has historically been the weak link. If the reforms land as designed, this Budget will age well. If they stall in Parliament or implementation, the spending commitments will outlast the savings meant to fund them.