Post-Federal Budget 2026-27 Comments

Income Tax

• The $250 is a Working Australians Tax Offset (WATO), commencing from the 2nd half of 2027, to be paid each year, ongoing and automatically.
• Every Australian taxpayer will receive a tax cut of up to $268 from 1 July 2026, then up to $536 every year from 1 July 2027.
• A $1,000 instant tax deduction from 2026–27.
• Overall, combining the 5 rounds of tax cuts, there is a proposed benefit of $2,816 in 2028 for the average worker.

Comment

• Tax cuts are welcome news right now, as it will add to the household budget. The question is amount and frequency.
• With the current high inflationary situation, a step-by-step WATO is a sustainable way of providing support for the average worker. This is because we currently have a high inflation rate. So, holding this off until mid-2027 and over a number of years mitigates the possible higher spending, which has a multiplier effect on the higher inflation rate. Having it as part of an ongoing system year on year, instead of one lump sum, adds to the household budget in a more sustainable manner.
• The $1,000 instant deduction is quite risky, as it can almost be read as a "cash handout" – although this depends on what can be deducted. In the past, we have had direct subsidies / tax cuts / cash handouts by a certain $$$ amount within a short timeframe, and many people spent the same amount, driving up the inflation rate in a flash. The difference with this, of course, is that you need to submit your tax returns, and that timing is dependent on individuals.
• The tax cut from 1st July 2026 addresses the fact that people are in a bind now, cost of living is high now, and the three cash rate hikes that just happened are now. Therefore, it helps, but of course we run the risk of higher inflation as well.
• Overall, tax cuts are always welcome, as they are designed to give people more money in the bank. However, with inflation already high, there is a high risk in providing a lump sum benefit or tax rebate. We might end up with a higher than predicted (by the RBA) inflation rate, potentially leading to more cash rate hikes than intended.
  
  

Property Tax Reform

• Limiting negative gearing for residential property to new builds from July next year
• Replacing the 50% CGT with inflation-adjusted indexation, with new builds having the option to use the 50% discount
• Introduce a minimum 30% tax rate on capital gains from 1 July 2027, and on discretionary trusts from July next year

Comment

• Unfortunately, the above changes apply to people who only have 1 investment property. ATO data indicate 71.5% of Australians have 1 investment property. There was talk in the “leaked documents” that it would only apply to people with multiple investment properties; alas, not so.
• For CGT reform, it is important to note that it will only apply to gains arising after 1 July 2027. This provides investors with time to evaluate their financial position and what they need to do with their investment property. It is possible that it will lead to investors selling before the due date, which can have an impact on the rental market. The idea is that any properties sold by the investor can be bought by a first home buyer or owner-occupier; however, this is not always guaranteed. That said, with the time lag (to 1 July 2027), it does provide both investor and renter time to adjust.
• First home buyers are touted as the winners of this budget, based on the above assumption. However, again, this can't be guaranteed.
• Existing negative gearing arrangements will remain unchanged for all properties held before Budget night. This is the grandfather clause. Therefore, current investors are "safe", which builds confidence and mitigates the risk of investors suddenly selling out and destabilising the rental market. Yes, there is a CGT change to think about, but at least knowing that your current investment property can still be negatively geared is a safety net.
• Investors of new builds will be able to deduct losses from other incomes. This soothes the worry of investors who may feel like they are "out of luck". This will also stimulate more housing supply, as investors might opt for a new build.
• The criticism here is that not all new builds are immediately rentable. You still sometimes must wait for the property to be built, during which time an investor would still incur mortgage costs.
• Investors who buy established houses after Budget night will still be able to deduct losses against residential property income. They will be able to carry forward unused losses to future years, but can't deduct them against other income like wages. Again, this soothes investor confidence, as at least there is still a way to deduct losses.
• There will be fear from renters due to the possibility of higher rental prices. This would be mostly why the government has delivered the first back-to-back increase in Commonwealth Rent Assistance (CRA).
• Interesting data to consider:
  • In 2022–2023 (the latest data available), about 1.2 million investment properties were negatively geared. This is roughly half of all investment properties in Australia. In the same timeframe, about 1.1 million people made a capital gain.
  • The Budget proposes that the new tax changes are to create about 75,000 homes in the market for first home buyers (and others).
  • Putting two and two together, over 1 million properties negatively geared / capital gains vs 75,000 homes is not much. That’s only approx. 6.8% of investment properties.
• This suggests that the design in adding more homes to the market through the negative gearing / capital gains tax changes is just a very small part. It tells me that the government is not fully reliant on this design.
• Where will the extra homes be? Properties can only be negatively geared if it’s a new build – that’s the key.
  • New builds can be quite expensive; first home buyer budgets sometimes do not stretch to this.
  • Less competition in the established market, so that first home buyers can compete in a fairer manner. But again, not guaranteed, as you might have an increase of owner-occupiers playing in this space.
• Overall, these tax reforms sound scary on the outset; however, there are some safety nets being built in. At the end of the day, most investors who own one property (71.5% of investors) will only have to sell once (and must adjust for CGT changes, depending on when they sell). If you have held the asset for a while and have made quite a profit through property price growth, you would still be adding to your overall wealth for retirement (which is why usually people do property investment).
• We shall have to wait and see how the other shoe lands (so to speak), and look at the data again over the next 3 months to see how the policy has translated. Even more accurate data would be before 1 July 2027 (the end of the 1-year grace period), to see how investors react once they have investigated their financials.

Housing Supply

• $2 billion Local Infrastructure Fund to help local governments and state utilities build essential infrastructure to support new housing.
• Proposed to support 65,000 homes over a decade.

Comment

• We need supply, no doubt about that. And wrap-around infrastructure is what has been a stalling point for creating new development in greenfield opportunities (some brownfield, but less so). This will help build that wrap-around infrastructure and make it more financially viable for developers to build.
• As always, the devil is in the detail – how will the funds be distributed, through what channel, how will they identify and prioritise project areas, and if there are any bottlenecks.
• Overall, it sounds good in principle, but we need to see an implementation plan.

Foreign Investors

Extending the ban on foreign buyers purchasing established homes until mid-2029.

Comment

• As it is, we do not have a lot of available stock in the established homes sector to satisfy demand. This move mitigates a higher level of competition in the established market, providing more opportunities for first home buyers.
• Foreign buyers can still purchase new builds, which maintain demand for this product and sustain housing supply pipeline; as developers need a certain percentage in pre-sales for financial viability.
• With higher construction costs and developer margins tightening, this decision will assist in making new projects more financially viable

Social and Affordable Housing

• $59.4M to help Community Housing Providers deliver social housing for over 4,000 young people aged 16–24 who are at risk of homelessness
• Releasing a further $100M from the Housing Australia Future Fund (HAFF) to improve quality of housing for First Nations Australians in remote communities

Comment

• Great initiatives, again, the devil is in the details.
• There will be criticism that the amount specified will still not be enough (4,000), due to a high level of demand and an increased number of young people at risk of homelessness.
• However, it is a start, and it's better than nothing.
  
  

General Comments

• The government puts forward a budget that has reform as its main message.
• There is some reform, especially big swings like capital gains tax and negative gearing.
• However, there is still quite a lot of spending promised for different sectors of the economy.
• Public demand, i.e. government spending, has been a significant factor (compared to private demand) in GDP growth since 2024, with a slight moderation in 2025, where private demand increased.
• This correction is due to cash rate cuts in 2025, stimulating private demand (household spending) to the point that it overtook public demand.
• Now, in 2026, with private demand on a slower growth trajectory due to higher cash rates, public demand is projected to be on the rise again.
• Therefore, to what extent is it really reform if there is still a high level of government/public spending that may contribute to a higher inflation rate?