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Treasurer Jim Chalmers will unveil the largest change to property taxes this century, deep cuts to the NDIS and measures aimed at cutting business costs in Tuesday’s budget that will break election promises while mapping out plans to deliver affordable housing to young Australians.
In recognition of the inflation pressures facing the country that have forced the Reserve Bank to lift interest rates at its last three meetings, Chalmers will also pledge a $45 billion improvement to the nation’s finances with every dollar of extra tax revenue saved.
Finance Minister Katy Gallagher, Prime Minister Anthony Albanese and Treasurer Jim Chalmers at Parliament House on Monday, preparing for Tuesday’s budget.Alex Ellinghausen
The budget is shaping as the most consequential since Joe Hockey’s infamous 2014 fiscal blueprint, as Chalmers vows to deal with “intergenerational equity” across most areas of government policy.
The centrepiece will be tax reform and extra spending on housing, with negative gearing to be restricted, the capital gains tax concession wound back to its original form and minimum tax rates imposed on family trusts. It will also contain a tax cut for wage earners, most likely to be paid as a tax offset for the 2027-28 financial year.
Before last year’s election, Prime Minister Anthony Albanese repeatedly said the government would not change negative gearing, which critics claim has combined with the CGT concession to put upward pressure on Australian property prices that are among the highest in the world.
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On Monday, Albanese effectively confirmed property tax settings would change, saying the government could not sit on its hands while more young people found themselves priced out of owning a home.
He said the government had to act, given people were increasingly frustrated by an uneven housing market.
“For a long period of time, young people have tried to save for a home. Another year has passed since the election and not enough has changed,” he told ABC Radio.
“So many people have had another year of missing out at auctions, of renting and paying someone else’s mortgage. And too many young people are close to giving up on the opportunity of owning their own home.”
Albanese told a caucus gathering on Monday that “a responsible government needs to be prepared to make tough decisions”.
Any change to property taxes will be contested by the Coalition, still reeling from the terrible result in the Farrer byelection where the combined Liberal-Nationals vote was just 21 per cent.
Shadow treasurer Tim Wilson accused the government of “deceit and betrayal” with the expected changes, saying it would hurt the people it said it was trying to help.
“It’s extremely clear that this government’s intention is to hit every single Australian, to tap into their wealth because they cannot control their spending addiction,” he said.
“This government’s budget process is in complete disarray because they have broken their word and Australians have woken up to the dishonesty at the heart of this government and its budget.”
In a further sign of how critical housing is to the budget, it will contain almost $60 million over the next four years to provide housing for young people on Youth Allowance or Austudy.
The money will go to community housing providers with the aim of housing 2325 people this financial year, climbing to 4355 people by 2029-30.
Shadow treasurer Tim Wilson says the budget will be built on deceit.Alex Ellinghausen
The Coalition has warned that the changes to CGT and negative gearing will hurt property investors. But research by analysts from UBS released on Monday argued the reforms are likely to make the purchases of shares more attractive and take pressure off property prices.
Strategists Richard Schellbach and Lily Huang said the changes to negative gearing would “level the playing field” against other types of investments, noting current tax settings had put upward pressure on property prices.
“The multi-decade boom in Australian house prices has been aided by favourable tax treatment, in particular negative gearing, extended towards investment properties,” they said.
Chalmers, who delivered budget surpluses in 2022 and 2023, will reveal a string of deficits over the next four years.
But through extra revenue, in part bolstered by the war against Iran, and $64 billion in spending cuts and reprioritisation of existing expenditure, Chalmers will announce a $44.9 billion improvement to the nation’s finances between 2025-26 and 2029-30.
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Over that period, the government had forecast combined deficits of more than $180 billion.
Chalmers, expected to confirm gross debt will surpass $1 trillion later this year, said a combination of factors was delivering the better budget bottom line.
“We’ve delivered a big improvement in the budget bottom line since we were elected and another improvement since the last update in December,” he said.
“What’s driving this improvement in the budget are the savings we’ve found and the spending restraint we’ve shown.”
A key swing factor remains the outcome of the war against Iran. Brent crude oil prices jumped by almost 5 per cent to $US105 a barrel on Monday as hopes of a resolution to the war fell.
The budget will reveal inflation is likely to reach 5 per cent by the middle of this year, in part due to the surge in petrol prices, while economic growth – forecast at 2.25 per cent in the mid-year update – is expected to be downgraded.
If oil prices remain elevated through the rest of the year, however, the economic fallout is expected to be worse, including higher inflation for longer and slower jobs growth.
The single largest cut will be to the NDIS with $35 billion sliced out over the next four years, while $3 billion will be saved by removing the discount on Private Health Insurance rebate for people over 65.
Some of the savings will be needed for extra spending, including $25 billion for state hospitals and $6 billion on new Pharmaceutical Benefits Scheme listings.
Chalmers will unveil a productivity package, aimed at increasing the speed at which the economy can grow without adding to inflation pressures. It will contain a suite of measures including a permanent $20,000 instant asset write-off for small businesses, the axing of fees imposed on construction and safety firms and the fast-tracking of building approvals.
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.From our partners