Labor coy on income tax cuts as Treasurer Jim Chalmers looks at negative gearing changes
The removal of tax cuts for homeowners and property investors could be tempered by a surprise tax cut in next week’s budget as Labor frames its unfulfilled promise of negative gearing as a virtue promise.
Finance Minister Jim Chalmers gave no indication he planned to cut income taxes when asked Monday, instead saying “our tax cuts are already coming.” He also cited a policy that allows a standard tax deduction of $1,000.
“I’ve seen some speculation about tax cuts: I would like to remind everyone that this is a government that cuts taxes, cuts income taxes,” he said, referring to small cuts given to the opposition ahead of the last election that takes effect in July.
But Chalmers did not rule out more tax cuts potentially coming into effect next year. This article asked sources in the cabinet and other parts of the government whether the budget to be announced next Tuesday will increase taxes on workers. Some cited Chalmers’ comments, while others said they would prefer not to discuss the speculation. However, none of them ruled out this possibility.
Proposing income tax cuts has been touted for years as a politically savvy way to sell tax reform that would include higher taxes in other areas.
Labor is set to re-embrace much of the failed 2019 tax agenda put forward by Bill Shorten, including the elimination of negative gearing and capital gains tax breaks and potentially heavier taxation of family trusts, as it aims to build a larger revenue base and persuade voters to reject left- and right-wing economic populism. Labor will not seek to make changes to franking loans, as then opposition leader Shorten did.
Shorten, who was defeated by Scott Morrison in a fight over the scope of his tax agenda, has argued for years that his mistake was failing to balance income tax cuts with tax increases in certain areas.
The two biggest reforms to the tax system – by Paul Keating in the mid-1980s and John Howard at the turn of the century – involved new taxes offset by deep cuts to income tax.
Prime Minister Anthony Albanese and Chalmers ruled out any changes to negative gearing before the election, although they did not offer the same guarantee for capital gains tax. Chalmers suggested the step back might be justified, just as the government did when announcing the cancellation of stage 3 tax cuts last term.
“You build trust by making the right decisions for the right reasons,” Chalmers said Monday. “For example, I will convey to you the steps that I think are necessary and justified regarding the phase 3 tax cuts. When we came to a different opinion, we explained the reason.”
Shadow treasurer Tim Wilson attacked Chalmers for pursuing a “full family savings tax package”, paving the way for a traditional battle between Labor and the Coalition over tax levels.
“Chutzpah is Jim Chalmers arguing that he must betray the Australians to be trusted,” Wilson said.
The need to extract money from the economy to rein in inflation, which was above the Central Bank’s target range even before the outbreak of war in Iran, weighs against tax cuts. Chalmers and Finance Minister Katy Gallagher announced on Monday that Labor would bank the revenue windfall and described the budget as “very responsible”. Labor’s near-record spending has fueled criticism that it is fueling inflation.
But high fuel prices caused by the closure of the Strait of Hormuz have hit consumer confidence and purchasing power, putting pressure on Labor to make life easier for households. Labor has already spent around $2.5 billion on reducing fuel duty.
“We still have a lot of work to do this week,” Chalmers said.
Any change to negative gearing (the offsetting of a person’s taxable income with losses on rental properties) would be a breach of a commitment Albanese made in a debate against then opposition leader Peter Dutton last year.
Albanese explained that any change in a negative direction was “off the table” and that the change would not help build more homes. At the time, Dutton said he did not believe Albanese’s comments.
Negative gearing changes are likely to be rolled over and applied to new properties to stimulate housing supply.
Productivity Commission chair Danielle Wood said last week it would make sense for Labor to match property tax changes with income tax cuts.
“We certainly … hope to see these types of changes reduce pressure on income tax over time,” he told the ABC. insider podcast.
When asked about the new tax cuts, Chalmers only mentioned Labour’s existing “additional” tax cuts, which will start in July. They’re modest, doling out just $5 a week to people making more than $45,000 a year, and will cost the budget $3 billion in 2026-27.
The second cut, which will start in mid-2027, is expected to cost $6.7 billion, while the $1,000 standard deduction is expected to cost the budget $1.2 billion.
High inflation is expected to force the Central Bank to raise interest rates for the third consecutive day on Tuesday. Another increase would mean a cumulative increase in repayments on a $600,000 mortgage by almost $300 a month.
Financial markets predict the possibility of an interest rate hike at 75 percent, and at least one more increase is expected by October.
HSBC Australia chief economist Paul Bloxham said Chalmers could ease some pressure on the Reserve Bank through targeted spending cuts.
“A surgical approach with a fiscal scalpel… would reduce the need for the RBA governor.” [Michele] “Bullock will have to deal more blows with the sledgehammer,” he said.
The Reserve will publish its own new forecasts for the economy following its interest rate announcement on Tuesday afternoon. These are expected to confirm a slowdown caused by the Iran war.
ANZ commodity analysts Daniel Hynes and Soni Kumari warned that even if demand for oil begins to decline in the coming months and production begins to recover, there will be a permanent loss of capacity, which will pose a huge burden on the global market next year.
Even the threat of a sudden closure of the Strait of Hormuz means Brent crude could remain above $90 a barrel for the rest of 2026, they said.
“Even if the worst of the oil shock is over by late 2026, the underlying causes of conflict in the Middle East are unlikely to disappear. Iran has proven that it can close the Strait of Hormuz and do it again,” they said.
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Paul Sakkal is the Chief Political Correspondent. He has previously covered Victorian politics and won the Walkley award as well as the 2025 Press Gallery Journalist of the Year award. Contact him securely on Signal @paulsakkal.14.Connect with: X or email.
Shane Wright is senior economic correspondent for The Sydney Morning Herald and The Age.Connect with: X or email.
