Australia's 2026 federal budget, delivered by Treasurer Jim Chalmers, is an odd affair. While much had been leaked, leaving few surprises, it still delivers one of the most ambitious moves to fix Australia's finances in years. The centerpiece is a bold plan to effectively kill off the 50% capital gains tax (CGT) discount, a reform that has been debated for decades.
However, the budget also reveals a government with limits on its ambition. There are no changes to the gas tax, no increased assistance for the unemployed or renters, and cuts to the National Disability Insurance Scheme (NDIS). Smaller deficits are forecast, but the economic outlook remains grim, heavily influenced by global tensions and US trade policies.
Key Budget Highlights in Seven Graphs
The budget papers, presented in seven key graphs, paint a picture of fiscal consolidation amid global uncertainty. The most significant graph shows the phasing out of the 50% CGT discount, a move expected to raise billions over the forward estimates. Another graph highlights the smaller-than-expected budget deficits over the next four years, partly due to improved economic parameters like higher oil prices and inflation.
Critically, the Treasury still hopes unemployment will not rise above 4.5%, although a section titled “Risk of a more severe Middle East conflict” underscores the fragility of these forecasts. The government argues the budget is not inflationary, pointing to the Reserve Bank governor's recent statement that interest rate rises are not currently affecting inflation, which is driven by international factors.
Spending Cuts and the NDIS
The budget makes clear that spending cuts are making the government meaner. The absolute truth about budgets is that they are about choices. This budget chooses not to care about many things. JobSeeker remains 42% below the poverty line, and the NDIS faces significant cuts to rein in spending growth.
While the government touts its fiscal discipline, critics argue that the lack of support for the most vulnerable reveals a lack of real ambition. The cuts to the NDIS, in particular, are a major point of contention, with advocates warning they will hurt Australians with disabilities.
Deficit and Economic Forecasts
The budget deficit is forecast to be smaller over the next four years than expected in the December mid-year economic and fiscal outlook (MYEFO). Some of this improvement is due to higher oil prices and inflation, which boost tax receipts. A lot, especially in 2029-30, is due to policy changes like cutting the NDIS and changing the CGT discount.
However, the global economy remains a major risk. The Treasurer is clearly frustrated by US President Donald Trump's trade policies, with one commentator suggesting he should send Trump “a big exploding cake as an up-yours present.” The budget papers also note the risk of a severe Middle East conflict disrupting global markets.
Is the Budget Inflationary?
A false narrative from conservative media and politicians is that government spending is driving inflation. The budget and the Reserve Bank governor argue it is not. Governor Michele Bullock recently stated that the three interest rate rises this year would not “do anything for inflation over the next six months,” making it clear that current inflation is driven by international factors like the Middle East conflict.
Evidence shows that any increase in government spending in late last year was driven by the states and territories and by defence spending. The forecast for public-sector demand growth in this budget is similarly benign, well below pandemic-era levels and not much faster than the late 1990s.
What This Means for Australians
For everyday Australians, the budget offers little immediate relief. Renters and the unemployed receive no additional assistance. The key takeaway is a long-term fiscal strategy that relies on major tax reform (CGT changes) and spending cuts to key programs.
The government is betting that improved economic parameters and these policy changes will lead to smaller deficits and a stronger fiscal position in the future. However, the risks from global conflicts and trade wars remain high, making these forecasts uncertain.
Frequently Asked Questions (FAQ)
What is the biggest change in the 2026 Australian budget?
The biggest change is the plan to effectively phase out the 50% capital gains tax (CGT) discount. This is considered one of the most ambitious fiscal reforms in years and is expected to generate significant revenue over the long term.
Will the budget help renters or the unemployed?
No. The budget does not include any increased assistance for renters or the unemployed. JobSeeker remains well below the poverty line, and there are no new housing affordability measures for renters.
Is the government’s budget deficit getting better?
Yes, the deficit is forecast to be smaller over the next four years than previously expected. This is due to a combination of improved economic conditions (higher inflation and oil prices) and policy changes, including cuts to the NDIS and the CGT reform.
