Budget Announcements Are Only Planned Changes
When taking in any announcements from the Government, understand that they are not “real” until they have passed Parliament. The Labor Government has more than half of the lower house, but only 29 of 76 seats in the senate – so they need the co-operation of other parties to get any proposed rules into Law. The reality is that it is likely that the Greens will support most, if not all, changes and it will be a fairly smooth approval – but until that actually happens, we can’t rely on these announcements.
This Article May Not Be Perfect
The 2026 budget is by far the most complicated one I’ve seen. This entire article was written on budget night (and the early hours the next day) and is based only on what was available from the Government. The budget papers are 990 pages long, and then there are fact sheets and other bits of info to work through. Due to the pure volume of info to work through, there may be minor errors (which I will correct as they are found), but as always, I’d rather get information out as quickly as possible and deal with minor errors as they arise.
Always seek personal advice before acting on anything in this article.
The Country's Financial Position
While we all read about the budget to learn what taxes will change and what benefits and handouts will be available – the budget is actually the presentation of the Government’s financial statements and the projections of the net few years. Let’s delve into those a little…
The Budget Deficit (i.e. the Profit / Loss)
The Government has reported a deficit of $28 billion for the 2026 year, and is projecting deficits for the next decade – and personally, it’s scary exactly how little the Government seems to care that it spends more money than it brings in each and every year.
Debt costs money (interest) – that’s money not available to spend on infrastructure and services. In the 2026 financial year the federal Government spent $18 billion on interest (which rises to $30 billion in just 4 years), which is a LOT of money. To put into perspective, that’s double what the Government spends on housing per year. Given the Government has made this budget about housing, that’s pretty pertinent.
We hear the terms “surplus” and “deficit” a lot at this time of year, but what does it actually mean? It’s essentially the profit / loss statement of the country and is a measurement of income less operating expenses. It’s not a full statement of all “ins and outs” of the Government, with some items being “off the books” (largely capital expenditure). So while we have a reported deficit of $28 billion, the actual cash position is worse.
Debt Levels
Debt continues to rise and gross debt will reach $1 trillion next year. That’s around $35,000 per person. Not per taxpayer, per person. Given the Government gets most of its income from taxes, that’s the amount of taxes required just to get the Government back to neutral. If not you, it’s your kids, grandkids, and great-grandkids that will be left with the burden of additional taxes (or decreased services).
Given it costs the Government around $800 billion to run per year, debt is equal to more than its entire annual income and as such one has to wonder if that debt will ever be paid and what the long term consequences of that are.
Those debt levels are still better than the UK, Canada, and the USA, so all is not lost, but unless something changes the fear is we end up in a similar position to Sweden and Finland back in the mid-1990’s. Their solution to fixing their debt levels were a combination of:
- Tax reform: Tax increases were inevitable, and while some measures were focused on the “rich” they had to increase the scope of the VAT (their version of GST) which impacted every person in the country.
- Service cuts: Pretty much all Government departments had to cut spending by 10%, and then any future increases had to be justified by productivity gains.
- Welfare cuts: Sick pay, unemployment benefits, pensions, family payments were all drastically cut.
- Rules against deficits: A rule was put in place that effectively forced Government to have budget surpluses, with independent people put in place to monitor and report.
The middle-class suffered the most: Both countries shielded the poorest from the greatest effects, leaving the middle-class greatly exposed. The “rich” had increased taxes, but those countries understood that simply taxing the rich would force those people to leave the country. The reality is that the rich have the luxury of leaving to a country that doesn’t tax them to the hilt – so you can’t just tax them at 70% to solve the problem. Right or wrong, it just doesn’t work.
In Australia, the the top 10% of income earners pay around 50% of total tax. In Sweden and Finland back in the 90’s, that figure was below 40%. Finland had scope to increase taxes on the top 10%, Australia arguably doesn’t. For those that believe that you can tax your way out of debt without cutting services… not one country in history has been able to do that. There is no reason to think Australia is any different.
Unless Governments do something very soon to tackle our debt, the above might be what our future holds.
Where Our Money Goes
If the Government collects around $800 billion per year ($812 billion in 2026), where does that money go?
- Social Security: $297 billion (incl $110 billion to “the aged”, $93 billion to people with disabilities, $52 billion to families)
- Health: $127 billion
- Education: $65 billion
- Defence: $53 billion
- General Public Services: $35 billion
- Fuel and Energy: $19 billion
- Transport: $17 billion
- Public Order and Safety: $10 billion
- Housing: $9 billion
- Recreation and Culture: $6 billion
- Agriculture: $5 billion
- Mining: $5 billion
- Other: $164 billion (incl interest on debt, interest on Government employee supernnuation, and “general purpose inter-government transactions” which includes GST)
The Headline
Dr Chalmers was keen to impress that “the war” was the cause of many problems, highlighting that inflation is expected to hit 5%, and could be as high as 7% – all while growth flatlines below 2%… a grim outlook indeed.
The other main focus was that “housing reforms go to the core of their budget” – and fair enough, buying a home is harder now more than ever with house prices rising twice as fast as wages over the past 27 years.
The Government has delivered the most significant tax changes in decades, so the obvious question is – how much easier will it be to buy a house?
Unfortunately, Dr Chalmers admitted during his post-budget interview on ABC that despite all these changes, they still expect house prices to increase by 2% per year. Given that’s approximately the same rate as wage growth – the answer is pretty simple, this will not make it easier to buy a house. It’s better than prices doubling wage growth, but it’s not really solving any issues and economists are wondering if that minor change in price is worth the signal it sends to the world that Australia is closed for investment.
The Changes
Let’s be honest, you’re reading to find out about what changes are announced in the budget. Taxes, social security, and so on. Wait no longer…
Reminder: Anything announced is a proposed change. The Government needs the support of either the Greens, the Coalition, or pretty much all of One Nation plus the Independents to pass any changes through Parliament.
Personal Tax Changes
There are 3 personal tax changes in the budget (more accurately, 2 new ones and one promise from years ago finally being delivered on).
The stage 3 tax cuts will be extended, cutting the tax rate for income between $18,200 and $45,000 to 14% (down from 15%). This doesn’t begin until the 2028 financial year.
A new “Working Australians Tax Offset” will be available to all working Australians that pay tax, delivering $250 for every eligible Australian. This doesn’t begin until the 2028 financial year; and
A new $1,000 automatic tax deduction will be available for everyone for the 2027 year onwards. This is essentially a minimum tax deduction and not a “bonus” tax deduction – if you already have more than $1,000 of tax deductions, this doesn’t help you at all.
Negative Gearing Changes
It was only 12 months ago that we were promised there would be no changes to negative gearing (or capital gains). Put aside whether there should or shouldn’t be changes – the economy hasn’t changed so drastically that the Government has had to upend its beliefs… so clearly we were all misled by the Government on what its priorities were. Regardless, these are the rules we need to live with…
Negative gearing will only be allowed for the purchases of new residential premises from 1 July 2027. Those disallowed negative gearing losses are quarantined and claimable once the property starts to make a profit.
All properties owned as of 12 May 2026 will be exempt from this change and will be able to continue to negatively gear until sold (which is called “grandfathering” – where existing arrangements are exempt from the new rules).
Properties purchased between 13 May 2026 and 30 June 2027 will be allowed to claim negative gearing losses until 30 June 2027, at which point they will attract the new rules.
This has unintended consequences however. We see way too often scenarios of landlords left with 5-figure repair bills following the exit of a not so nice tenant. That repair bill (coupled with no income while repairs are being conducted) means the property makes a loss. Now, the landlord can’t even get a tax deduction for those costs.
If you currently have a property under contract but waiting on settlement – good news, you are treated as having purchased prior to 12 May 2026 and allowed to claim negative gearing losses as long as there are no changes to the contract that would trigger a significant change to the terms.
Commercial Property
While not actually specified in any budget document that I could see, I understand that commercial property is not caught up in these new rules – which makes sense. If the purpose is to encourage new residential builds vs existing housing, there is no reason to punish commercial property.
Negative gearing occurs when the expenses of the property are more than the income – so the Government is essentially treating property losses different to most other losses (given most losses can be claimed).
There is a focus on “new residential premises”, and the main question we have at this point is how you define what is “new” and what is not new.
It seems the definition of what is “new” will be limited to land built on vacant land or knock-down rebuilds where the rebuild resulted in more houses than what were knocked down. If these new builds have been lived in for less than 12 months since being built, they will be “new” and able to take advantage of negative gearing.
This is different to the existing definition of “new residential premises” which is used for GST purposes – so for those with property experience, be wary of that difference.
These changes apply to all residential properties within companies and trusts also, but not super funds (however we note that due to lending rules, almost no rental properties within super funds are negatively geared).
What is Residential Property?
We do have a question on the definition of “residential” property however. A normal house will clearly be residential, but what about an AirBnB? Some of these are what Tax Law calls “commercial residential property” – property with characteristics of both residential and commercial.
There is no guidance on this that I could see in the budget papers, so it will be interesting to see how these properties are treated when legislation starts to be presented.
These rules only apply to negative gearing losses from residential property, so we see a potential loophole as the following:
Mum and Dad creates a company to hold their rental property. They borrow money from the bank to fund the purchase of shares in the company (and not to fund the purpose of the property – a technical difference). The company will make a profit, because it doesn’t hold the loan.
The company pays tax and declares a dividend to Mum and Dad. That dividend is taxable (with a tax credit equal to the tax paid by the company), however, the interest on the loan is fully tax deductible against this dividend (remember, Mum and Dad took out the loan to buy shares in this company). The interest is more than the dividend (i.e. profit on the rent) and therefore Mum and Dad have a negative gearing loss on that dividend.
That loss would be available to offset against other income because its not negative gearing on property, its negative gearing on shares.
Time will tell how the Government tackles situations like this.
Capital Gains Discount Changes
From 1 July 2027, the capital gains discount will be scrapped and taxpayers will pay tax based on the inflation adjusted profit (or “real” profit as the Government likes to say).
Importantly, these changes are PARTIALLY grandfathered (and hold on to your hat while we try to explain this…) For the increase in value on your asset from purchase until 1 July 2027, you will eligible for the 50% capital gains discount. For the increase in value on your asset from 1 July 2027 until sale, you will NOT be eligible.
For example: You purchased an asset on 1 July 2020 for $100,000 and you sell on 30 June 2030 for $200,000 (i.e. in a few years time, clearly captured by the new rules). You will have to work out how much of that $100,000 value increase is attributable to the July 2020 to June 2027 period, and how much is attributable to the July 2027 to June 2030 period. It seems that your options are to get a formal valuation in June 2027, or use a set formula (which is yet to be disclosed).
New Build Exemption
Just to complicate this further, purchases of new residential premises will be exempt and will be allowed to use the 50% discount.
It seems the definition of what is “new” will be limited to land built on vacant land or knock-down rebuilds where the rebuild resulted in more houses than what were knocked down. If these new builds have been lived in for less than 12 months since being built, they will be “new” and able to take advantage of the 50% discount.
Superannuation Exemption
Superannuation funds are currently eligible for a 33% discount on capital gains – this will remain unchanged.
A capital gain is essentially the profit on the sale of an asset. Currently, when an individual makes a capital gain, 50% of that gain is tax-free where they have held the assets for more than 12 months. If the asset is held in super, the discount is one-third, and companies don’t get any discount.
The discount was introduced in 1999 to simplify how capital gains were calculated. It certainly resulted in less tax for pretty much all investments held for less than 15-20 years, the justification being that it incentivised investment in the country and helped the country grow. Last night, that was reversed.
I can see the reasoning – why should an investor pay less tax on the same income as a salary and wage earner? On face value it’s clearly unfair, but you have to acknowledge that tax isn’t always about “fair” and is sometimes about growing the economy as a whole. Most developed countries tax capital gains at a lower rate than salary and wages – so if you make it more expensive to invest in Australia, will people simply invest in other countries instead?
But back to the tax changes… this does complicate the tax affairs for anyone with a capital gain in the future. The current rule is simple: sale price less purchase price = gain. Half of this is taxable. Nice an easy for Mum & Dad to get their head around should they wish to do their own tax return. From today, you have to calculate the inflation adjusted cost of your asset.
This involves looking up CPI numbers from when you purchased the asset, CPI numbers for any additions / improvements, and comparing them to CPI numbers at the date of sale.
For example, you purchased a property in March 2016 for $500,000 and sold in March 2026 for $1 million (and lets ignore that this investment would qualify for the discount, just so we can see how the new rules work). We need to know the CPI numbers of March 2016 (75.12) and March 2026 (102.44). 102.44 divided by 75.12 equals 1.354 (i.e. inflation is a 35.4% increase over this period). $500,000 times 1.354 equals $677,500 as the inflation adjusted cost, and therefore the taxable capital gain is $323,000 ($1 million less $677,500).
It took me, as a somewhat intelligent person who deals with numbers all day long, around 30 minutes to find these CPI numbers. They are maintained by the Australian Bureau of Statistics and finding a full history of CPI in one table was much more difficult than it needed to be. For reference, you are looking for “Table 17” at https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release#data-downloads, and then looking for the column labelled “All groups CPI Australia”.
Not only this, you also need to work out how much of the capital gain is attributable to the period before 1 July 2027, and how much after, as they have different treatment.
I’ll just apologise in advance to all clients that face increased costs from us in having to deal with these new rules – it’s not going to be pretty.
Minimum 30% Tax Rate on Capital Gains
Shocked… absolutely shocked when I heard this. From 1 July 2027, all capital gains will attract a minimum 30% tax rate.
Let me be clear – minimum tax rates on any income ONLY impact those that earn less than this tax rate. If you are paying 47% tax on income already, a minimum tax of 30% doesn’t change the amount of tax you pay. If you are paying 15% tax however… well, thank you Dr Chalmers.
One exemption is for individuals receiving Government payments – if you are receiving a payment (which usually means you are on a low income), you will be exempt from the minimum 30% tax. Kudo’s to the Government for acknowledging this, as it was the first concern I had when I heard the announcement.
The rationale behind the minimum tax rate is that people are deferring selling their assets until retirement or years where they have lower income, and are therefore “cheating the system”.
New Build Exemption
Just like for the capital gain discount, it appears that purchases of new residential premises will be exempt from this new 30% minimum tax rate.
Superannuation Exemption
Superannuation funds will also be exempt from this 30% minimum tax rate.
Minimum 30% Tax Rate on Discretionary Trusts
Discretionary Trusts (a.k.a. Family Trusts) will be taxed at 30% for the first time ever in Australia’s history. This change will see a trust pay a 30% tax rate, and when that income is distributed to beneficiaries, they will receive a non-refundable tax credit for that 30% tax.
This measure will start for the 2029 financial year, with a 3 year “rollover period” for small businesses that want to restructure their affairs beginning on 1 July 2027.
For the avoidance of doubt, super funds and deceased estates (which are a type of trust) are exempt from this new minimum tax rate.
Subjecting trusts to a 30% tax rate effectively puts them on simlar footing with companies.
The trust will report its profit, pay 30% tax, and the balance will be distributed to beneficiaries. The beneficiaries will report the income and be allowed a non-refundable 30% tax credit to prevent double-taxation.
For example: Trust makes $100 profit, pays $30 tax, and distributes this to Joe Bloggs. Let’s assume Joe Bloggs has $30,000 of other income and is sitting in the 15% tax bracket. Joe would ordinarily be liable for $15 tax on the $100 (being $100 x 15% personal tax rate), which would be reduced to $0 thanks to the $30 tax offset (noting that the unused $15 is non-refundable).
If we alter that example to Joe earning $200,000 and being in the 45% tax bracket, Joe is liable for $45 tax on the $100, less the $30 credit. Joe would have a payable of $15 on his tax return.
This is very close to how company dividends are taxed, so if you are interested in a video explaining this concept, you can view our video on how franked dividends work for more on this concept from a company’s perspective.
Currently, a trust pays 0% tax. That doesn’t mean people with a trust pay no tax however, because the people that benefit from the trust will generally pay personal tax on the trust’s income. In most cases, Mum and Dad business owner will pay personal tax rates on that trust income (i.e. no different to if they were earning that income directly).
So the question is – what is the actual fuss about trusts?
If you think of a family that has one income earner and one stay at home parent. The working parent earns (say) $100,000 of income and pays personal tax on that (which is a little under $23,000). If a family was running a business via a trust and made $100,000 of profit, the trust essentially chooses who pays tax on that money.
The trust would split that $100,000 between both parents (i.e. $50,000 each), and each would pay a little over $6,500 of tax each (a total of just over $13,000). The trust has resulted in just under $10,000 less tax.
Not particularly fair.
If you’re concerned about some people using trusts to split their income while “working families” can’t – the answer is simple… introduce a family tax return and give income splitting to everyone. Have the option of combining your income, accessing doubled thresholds (i.e. double the tax-free threshold etc), and put everyone on the same terms. Those that use trusts for other reasons (i.e. asset protection and estate planning) don’t get punished, and the “working families” that the Government likes to say it cares about actually gets a meaningful tax cut.
But instead of allowing everyone to pay less tax, the Government would much prefer everyone pays more tax.
The kicker here is that justification for this change is that the “rich” supposedly benefit from trusts and therefore it needs to be changed. The issue is that because the rich are generally on a higher personal tax bracket (i.e. 37 or 45% tax bracket), they aren’t really paying any additional tax.
So if the rich will not pay more tax, but the poor might (via the minimum 30% tax rate), are you actually helping those that to claim to champion?
We do tax minimisation for a living and it took all of 2 minutes to find the loophole. It took longer to write this section than it took to work out how to get around the rules.
Reason 1 – Companies
A minimum 30% tax, as we said earlier, treats a trust similar to a company. Trust makes profit, pays tax, individual get a tax offset equal to the tax paid by the trust.
The difference between a trust and company is that dividends from a company are NOT subject to a minimum tax rate and effectively you can get a tax refund from company dividends.
So the answer is simple, structure your business or investment in a company and now you’re not subjected to this 30% minimum tax rate! The company can pay dividends to low income earning individuals and they will receive a refund equal to the tax credits on the dividend (to the extent that it exceeds their personal tax rate).
For example: using Joe Bloggs from earlier, company makes $100 profit, company pays $30 tax, dividend for the full amount is declared to Joe. Joe will be liable for $15 tax on the dividend less the $30 tax credit. This time, the “unused” $15 is fully refundable to Joe because Joe outsmarted the Government and used a company structure instead of a trust.
Warning – I see the Government changing the rules around company dividends to close this loophole pretty quickly, but honestly, the fact that the Government hasn’t spotted this is scary.
Reason 2 – Wages
The Government loves to say the rich are exploiting trusts and robbing workers – so let’s see how this will impact the rich.
The 30% minimum tax can ONLY work if the rich are distributing trust income to family members that earn less than $45,000. That is the ONLY circumstance where this minimum tax rate created more tax revenue. Typically, this is because you distribute $45,000 of income to your non-working spouse or non-working adult children who pay a small amount of tax thanks to the tax-free threshold and 15% tax rate on income below $45,000. This is instead of the rich business owner paying tax at the top tax rate.
If you’re “rich”, chances are you have a business of some sort or you have multiple trusts, multiple companies, and so on. So now, these non-working relatives will now have token jobs with these entities, earning $45,000 of wages from these jobs being taxed at the same low tax rates.
The trusts will now have $45,000 less income being taxed at 30% – resulting in exactly ZERO extra revenue for the Government from the rich.
Instant Asset Write-Off Changes
The current $20,000 threshold for instant asset write-offs will be made permanent. For some reason Governments for the past 10 years had this as a temporary measure that they needed to re-announce every year – thankfully that game is over and we can plan with certainty.
Warning: The instant asset write-off is only available to small businesses – a concept that is commonly misunderstood. Investors (e.g. rental properties) don’t get access to the instant asset write-off, and neither do many tradies (contrary to all the media reports).
The instant asset write-off allows small businesses to claim in full the cost of depreciable assets, where the total cost was less than $20,000. If you pay $19,999 for a piece of machinery – great! If you pay $20,001 – you miss out entirely.
But this isn’t a “bonus” tax deduction, it’s merely allowing you the full tax deduction for that item now, instead of claiming it gradually over a number of years (which is called “depreciation”).
One catch with the instant asset write-off is that using it opts you into the small business depreciation regime. This means all assets over $20,000 are “pooled” and depreciated at the same flat rate (15% in the first year, 30% after that), and you can’t pick and choose what assets that cost under $20,000 you claim in full.
There are many cases where you are actually worse off using the instant asset write-off, and this is where chatting to your accountant before you do things really pays off. Many people just hear in the media that you get this nice fat tax deduction, so they splurge on equipment before 30 June thinking it will give them a nice tax refund only to be given the bad news later.
Importantly, as touched on earlier, the term “small business” is crucial. You need to be running a business, as defined by Tax Law. The definition is NOT having an ABN, it is whether you are trying to make a profit and accepting all the commercial risks that a normal business has. Subcontractors get caught out all the time – unless you advertise to the public, are required to hold public liability insurance, and are responsible for the costs of defects in your work – you probably aren’t running a business and therefore cannot access the instant asset write-off.
Electric Vehicle FBT Changes
Following the Government wildly underbudgeting the impact of the EV tax incentives (the actual cost was 10 times the budgeted amount), they’ve decided that it’s not actually that important to get people into electric cars and the tax incentive should be greatly reduced.
Thankfully, those looking to buy an EV in the coming years will be glad to hear that rumoured changes to the current fringe benefits tax (FBT) exemption for EV’s will be retained in its current form until March 2027.
From then until March 2029, the exemption will continue to be available on cars costing less than $75,000 (which is not a big drop from the current threshold of $91,387). Cars between $75,000 and $91,387 will receive a 25% tax reduction (instead of 100%). From April 2029, all EV’s costing less than $91,387 will get the same 25% tax discount.
I’m not 100% sure if these rules are grandfathered or not at this time (i.e. if existing EV’s will get the current treatment until sold).
Note: The $91,387 is the luxury car tax threshold for fuel-efficient vehicles, and is indexed each year.
FBT-free EV’s can be a massive tax saving for anyone that is able to salary sacrifice via their employer for an EV.
Currently, cars in general attract FBT when provided through their employer. In most cases, the amount of FBT paid is equal to around 20% of the car’s cost per year. If you think of a $50,000 car, that’s $10,000 per year.
Buy an EV and that’s an automatic $10,000 tax saving per year!
It’s important to note that this is based on a very high private usage of the car – if you use your car largely for work (and you keep a log book), the “normal” FBT can be significantly reduced, in which case an EV won’t create much of a saving.
NDIS Changes
It’s been fairly well advertised that the Government is looking to get 160,000 off NDIS and cut costs. Budget documents suggest these savings will be something like $38 billion over 4 years and $150 billion over a decade.
What you probably don’t know is that these cuts don’t actually reduce the cost of the NDIS scheme…
These “cuts” will only stop the growth of the NDIS program from exceeding the benchmark of 5% – 6%. Yes, you read that right. The NDIS is growing so fast that even after large-scale cuts, it will still grow at a rate that is double the inflation target of the country.
Nevertheless, the NDIS is clearly a bloated program that needs wholesale changes, and well done to the Government for doing something about it. One has to wonder though – why are we persisting with what is a clearly broken and unaffordable system?
Something we want to point out is that while the annual cost of the NDIS was around $54 billion in 2026, there is also an additional $26 billion spend on “financial support for people with disability” and $13 billion on “financial support for carers”. For anyone under the impression that the $54 billion includes those items, that’s unfortunately not the case.
Other Changes
In the interests of keeping this article as concise as possible, we’ve summarised all of the important and relevant changes below. Reminder – these are all proposed changes and need to pass Parliament first.
The loss carry-back rules allow a company making a loss to claim a tax refund against tax paid in prior years, starting in the 2027 financial year.
For example: Year 1, company makes a profit of $100 and pays $25 tax. Year 2 it makes a $100 loss. Year 3 it makes a $100 profit.
- Under current rules, that loss is carried forward and offset against future gains. i.e. when it makes a profit in Year 3, it will effectively get the tax benefit from that loss in Year 3 because no tax will be paid in Year 3.
- Under the loss-carry back rules, that loss creates a $25 tax refund in Year 2 (and then $25 of tax is paid on Year 3’s profits).
The above loss carry-back rule creates a refund where the company has paid taxes in the past (and those profits have not been distributed to shareholders), but makes a loss this year. But what about start-ups that make losses in early years?
They will be allowed to get tax refunds on those losses, despite not having ever paid tax.
The amount of tax refunds will be capped at the tax paid on withholding from wages and fringe benefits tax, and this measure will start in the 2028 financial year.
I’m sorry, but I’ve watched this movie before… Government says it will cut red tape. Government does nothing except increase red tape. We hear pretty much every year how the Government will spend “x” dollars on cutting red tape, but does anyone actually think there is less red tape now compared to 4 years ago?
The list of changes announced include a “tell us once” approach, aiming to prevent you needing to tell multiple Government departments the same information, and honestly, why in 2026 this is an issue is an indictment on the Government.
Small businesses will be given the option to pay their tax instalments monthly instead of quarterly from the 2028 financial year.
I think a grand total of 3 business will take this option up, as I don’t know one business that has asked to pay tax to the ATO more often and sooner than otherwise required.
Tax instalments for businesses are calculated in a pretty archaic way. The ATO use your figures from your last tax return, assume that you will grow a little, and want the same amount of tax this year, as you paid last year.
The problem is that very few businesses make the same amount of money one year to the next.
Enter “dynamic instalments”. Using data from your accounting software, the Government is hoping to find out how much you are earning and tax you on that. The question is, will you invite the Government into your books?
With all the changes, small business owners may wonder whether the existing capital gains concessions are impacted. The Government have promised that these will be unchanged… so expect changes soon 🙂
Seriously though, these are unchanged.
The elders among us will know that if you purchased an asset before the concept of capital gains existed (September 1985), the sale of that asset is tax-free. This is because of the “grandfathering” concept explained earlier.
From 1 July 2027, that is not longer the case and those capital gains will be taxable.
The “R&D” offset will be tweaked, with the focus being on “experimental core” expenditure – essentially expenditure focused on developing new technologies. The R&D rate will be doubled for these experimental core expenditure.
A few thresholds will be increased along with higher rates.
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Private health insurance rebates for older Australians (over 65) have been reduced by (on average) around $240 per year.
Currently, the rebate given to older Australians is higher than what is provided to younger Australians. This (presumably) acknowledged that medical costs increased as you got older. The Government has been quoted as saying the current arrangement was “not fair between generations” and needed to be fixed.
This was actually implemented prior to the budget, so technically not a budget announcement but something relevant that not a lot of people know about.
Keeping with the theme of improving housing, the Government will hand out an extra $2 billion to councils for infrastructure like roads, sewers, etc. This will help service 65,000 new homes.
But given the target is 240,000 new homes per year, one has to wonder how far this money will actually go.
$10 billion has been earmarked to help increase the level of fuel kept in reserve. The current war in Iraq has demonstrated that the approx 30 days held is not enough, and this $10 billion should boost that by around 10 days worth of stock.
To keep up with it’s NATO obligations, Australia – like other NATO countries – will be increasing its defence spending to 3% of GDP. This will result in an additional $5.3 billion per year for the next decade. Some of this expenditure has already been committed to, so it’s not really a $53 billion increase, but it is still a very substantial amount.
What's Misleading
Every Government is, well, less than forthcoming with the truth. Governments unfortunately care more about keeping themselves in a job than anything else, so if they have to give you a word-salad that is technically true but misleading… well, that’s on you for not being a mind-reader.
That’s what we’re here for – facts without the spin.
$64 Billion of Savings
If I save $100 this week by eating in instead of not heading out to dinner, but then spend that $100 on going to the movies – have you actually saved any money?
One must ask, how gullible does our Government think we are that it can claim we are saving billions while still having history making deficits and debt? You can claim to have “net savings” or any other term you like, but we had a surplus and now we have deficits as far as the eye can see… you haven’t really saved any money.
Personal Tax Cuts
You’ll see references to Government made calculators that will work out your tax savings from the budget, except there are problems:
- 80% of those cuts relate to the stage 3 tax cuts that came into effect a long time ago
- $250 is the new Working Australians Tax Offset (which isn’t available to all working Australians), and
- a couple of hundred is the new $1,000 instant tax deduction – the problem is, if you already have $1,000 of tax deductions, you don’t get any benefit from this measure.
Tax Changes Will Benefit Younger Australians
The premise for much of the changes is “intergenerational fairness”. The thought is that baby boomers have had the benefits of these “unfair” taxes and its pushed house prices up. I can see the argument (without commenting on whether I agree or not).
But to respond by increasing taxes on future housing purchases, while allowing baby boomers to continue to benefit from the lower taxes that they are complaining about (via grandfathering arrangements)??? Surely there is a better way.
And to make matters worse, the Government admits that changes won’t actually reduce property prices. The reality is that unless the Government magically builds a lot more houses than it plans to, housing will continue to be unaffordable for many Australians. What the Government has done is ensure that all future generations wanting to own investments to secure their future will face higher taxes – and that is primarily the younger Australians that the Government claims to protect.
NDIS Cuts
It was highlighted earlier, but again – NDIS is not being cut.
The NDIS is wildly out of control, growing at around 15% per year over the past 4 years and (prior to this budget) projected to grow at around 10% over the next 4 years.
It’s simply unsustainable to do this while we are at the same time needing to spend $18 billion per year on interest (a figure that is also growing rapidly) and $5.3 billion on defence (to keep up with NATO obligations) – so either taxes need to be drastically increased, other services need to be cut, or the NDIS needs to be cut.
In reality, the Government has opted to do neither. Yes, cutting $38 billion is a start and helpful, but the NDIS program will still grow at 5% – 6% per year, which in itself is not sustainable. Given the Government has overseen a 15% annual rise in the NDIS, is scaling this clear failure back to a smaller level of failure worth congratulating them?
Productivity Growth
The Government was cautious, but spruiked that the budget will drive growth. The reality is that this is far from the truth.
Growth forecasts are 2% – 2.5% in the near future, while the Government’s own budget papers admit that the rest of the world will grow at 3% – 3.25%. In a country with abundant natural resources and all the natural advantages we have, how are growing slower than the rest of the world?
Does The Budget Get A "Pass"?
Pass or fail is difficult because it is subjective. If you are a hard capitalist and believe in lower taxes and small Government – then I dare say you’ll struggle to see many positives here. If you lean towards socialism and expect people earning more than average to shoulder a greater burden of tax – then you’ll see positives in what Labor is doing.
But putting those ideological beliefs aside, any business / charity / group / activity / or Government can only deliver on its priorities if it can do the basics right.
A Balanced Budget
The simple reality is that if you run out of money, you fail.
Yes, Government is different, but no country in history has been able to defy that simple premise.
Government’s have to either borrow money or print it. Borrowings result in interest, which take money away from services. Printing money devalues it, meaning the country is less powerful on a global scale – neither are good.
This Government isn’t even pretending to care that all future projections are for more deficits, more debt, and more pain on future generations – and that is scary. It will be interesting to hear the Opposition’s reply on Thursday night and see if they show any concern for the nation’s finances (and I dare say they will talk a big game but not put any real proposals forward).
It’s hard to see how Mr Albanase and Dr Chalmers get a pass on this measure.
Efficient Regulation
We need laws. We need regulation.
Putting aside whether you like or dislike rules – they need to be efficient. They need to actually achieve their objectives without imposing too much of a cost or impost on the country.
For example, years ago one Government introduced a “mining tax”. it raised around $900 million in total and cost the Government and businesses $1 billion to implement. The perfect example of failed regulation. Coming back to the present – the Government has made some bold changes to investment rules in order to tackle “intergenerational wealth gaps” will they work?
I doubt it.
Over the past 4 years, population growth is around 3x the number of houses built. That is to say, every new home needs to house 3 people to maintain the status quo… and that’s not sustainable. Economics is pretty simple at times – if you don’t build enough houses, more people are competing for the same asset and the price goes up.
The Government created a housing fund not that long ago to address this, but it is performing poorly (i.e. ineffective regulation). If the Government isn’t building them, you need investors to chip in. The problem is that both Federal and State Governments are actively discouraging investors from the property market. Like it or not, in the current environment, less investors equals less homes being built and an increase in prices.
To make matters worse, it’s expensive to build a new home so there is an effective floor on how low property prices can actually go. There is an estimated $160,000 of taxes incurred in developing and building a very modest $700,000 home ($400,000 land and $300,000 build)…
If you want to supercharge housing, I know exactly where I’d start. The sceptic in me thinks that this budget was more about implementing a tax agenda, and wrapping it up as “fixing housing”.
Unless the Government finds a way to build more houses (and / or curb population growth), prices will remain as they are and the changes in this budget will all be for nothing. Time will tell on whether our Government gets a pass or not.
Inflation
The other key basic that a Government needs to control is inflation – and I think we all know the Government is failing here.
Australia is the only western nation that is going through interest rate rises. Japan is the exception, but that’s only because their current rate is less than 1% (ours is 4.35%). We are higher than all of the USA (3.75%), UK (3.75%), Canada (2.25%), and the Euro (2.15%). As much as Australia is special, it’s not unique. There is no reason for Australia having higher interest rates than the rest of the world, other than for Government intervention.
We’re constantly told by the Government that “the war” is to blame, but the RBA has directly lashed out against Government spending – stating that the Government is a key driver of our current inflation. Over the past 4 years, government spending has increased at a rate of 6% per year – well in excess of CPI which supports the view of the RBA. Given the Government (any Government) has an incentive to be less than forthcoming with the truth, I know which party is more likely to be giving us the full story.
This budget is better with Government spending increasing at a rate of 3% – 3.5% per year over the next 4 years (that’s not including capital projects that sit outside the budget), but it’s still in excess of the country’s inflation target, and doesn’t even begin to reverse the past – so it’s difficult to see how the Government is doing anything real to address inflation.
The Government all but admits this, projecting between 5% and 7% inflation over the year – which is sure to send shock waves through the RBA and will no doubt trigger further interest rate rises.