Everything you need to know

Updated May 12, 2026 — 20:35,

Finance Minister Jim Chalmers calls it the “most important and ambitious” budget in recent years.

It matters because it coincides with the economic turmoil caused by the Iran war, when interest rates rose and the government spent tens of billions of dollars to prop up the economy. It also improves fuel security, cuts $36 billion from the National Disability Insurance Scheme (NDIS) and cuts taxes on fuel by $2.5 billion to reduce petrol and diesel prices.

Photograph: Author: Matthew Absalom-Wong

Ambitious because the government is pushing for significant tax reforms, cutting back on popular tax incentives and cutting capital gains.

Here is the budget breakdown.

Tax

Capital gains: An inflation-based model will be reintroduced, aiming to tax only the “real” value and real profit of the asset. From July 2027, a 30 percent tax rate will apply to capital gains. However, investors in newly built homes can still choose to apply a 50 percent reduction in capital gains tax. Previously, when Australian residents sold assets, they could reduce their capital gains bill by 50 per cent if they owned those assets for 12 months or more.

Negative gear: The housing investment stimulus will be limited to new construction, and the government has said it will encourage new home construction to address the housing crisis. Previously, investors could deduct losses from an investment, such as a rental property, from their taxable income. The government said tax benefits were concentrated among high-income earners and young people were finding it harder to buy a home.

Income tax deductions: Billed as a working Australians tax offset (WATO), there will be a $250 tax cut from July 1 next year. Additionally, starting July 1, announced in last year’s budget, those earning more than $45,000 will receive a cut of about $5 per week. Tax rates for those in the lowest tax bracket earning between $18,201 and $45,000 will drop from 16 percent to 15 percent.

Instant asset deletion: A temporary write-off measure will be made permanent for small businesses with annual turnover of less than $10 million. The instant asset write-off limit was previously temporarily increased from $1,000 to $20,000, expiring at the end of this fiscal year.

family trusts: The government will impose a minimum 30 percent tax rate on discretionary trust distributions from July 1, 2028, eliminating a popular tax minimization scheme for business owners and farming families. Exemptions are available for fixed trusts, pension funds, special disability trusts, deceased estates, and charitable trusts. Some agricultural businesses and vulnerable minors will also be excluded from the scope.

big numbers

Open: The budget deficit this fiscal year will be 28.2 billion dollars, and next year it will be 31.5 billion dollars.

Economic growth: The global oil shock caused by the war in Iran is expected to slow economic growth. The rate, which was 2.25 percent at the end of June, will drop to 1.75 percent during the 2026-27 financial year.

Inflation: Rising fuel prices increased inflation; Inflation is expected to rise from 4.6 percent to 5 percent by the end of June, above the Central Bank’s target range of 2 to 3 percent. This is based on a central forecast that assumes oil prices will not rise further and will fall to $80 per barrel by July 2027. However, if the war drags on and oil reaches $200 per barrel, inflation could reach 7 percent.

Actual fees: A decline of 1.75 percent is expected this fiscal year. The budget projects that they will grow by 1 percent again in 2026-27 and 1 percent thereafter.

Total taxes: This year it will increase to 716.6 billion dollars and next year to 756.3 billion dollars.

cuttings

Chalmers said the budget provides net savings of $26.1 billion, with many major initiatives.

NDIS: The program will be cut by $36.2 billion over four years, with up to 300,000 people removed from the program. Budget figures show the program will grow from $53.8 billion this year to $56.1 billion next year. Annual funding will return to $55 billion as the changes are implemented, then return to $56.2 billion in 2029-30.

Private health insurance: With the removal of the private health insurance discount, subsidies for those over 65 will be cut and $3 billion will be saved in the next four years.

Inland Railway: The ambitious Inland Rail freight line was originally planned to connect Brisbane to Melbourne. It will be stopped at Parkes in NSW and work will be focused on the southern half, cutting costs and reducing gross debt by $4.4 billion.

Public officials: The government has put the brakes on public sector pay and has budgeted for next to no increases, which will lead to staff freezes, redundancies and cost cuts across departments.

Housing

tax reform: As outlined above, restricting the negative bias to new builds and withdrawing capital gains tax relief is designed to reduce the incentive for investors to compete against first home buyers.

foreign investment: Foreign investors will be prohibited from purchasing established homes for another two years, until the end of fiscal year 2029.

Infrastructure: On the supply side, a $2 billion fund will be created for local councils and utilities to build roads, water, electricity and sewer systems. The funding is available to states and territories committed to cutting through red tape and freeing up land for development. The government says the fund will support the construction of 65,000 homes over 10 years.

Environmental approvals: $500 million will be allocated to streamline planning and construction approvals to accelerate housing development.

Health and elderly care

Hospitals: As part of the federal government’s funding deal with the states and territories, $25 billion will be transferred to public hospitals.

PBS: More drugs will be added to the Medicines Benefits Program with an investment of $5.9 billion.

Medicare Urgent Care Clinics: $1.8 billion over four years will fund 137 bulk-billed walk-in centers. From now on, 500 million dollars will be funded every year.

Elderly care: Nearly $3 billion in savings from cutting the private health insurance subsidy will be poured into aged care to provide an extra 5,000 beds a year and make showering, dressing and managing incontinence free during home care. Aged care providers will be given $606 million in incentives over four years to expand accommodation.

Disability: $2 billion in funding will be provided to the Developing Children program to support autistic children. $3 billion will provide essential support outside the NDIS.

War

Treasury said the hit to the global economy and the rise in inflation caused by the global oil shock would slow Australia’s economic growth, which was expected to fall from 2.25 per cent this financial year to 1.75 per cent in 2026-27.

While the central forecast expects inflation to peak at 5 percent, he said this rate will rise to 7.25 percent if the war continues and the global oil price reaches 200 barrels of dollars.

fuel safety: $14.8 billion will be spent to improve the resilience of Australia’s fuel supply chain; This will include $3.2 billion to buy 1 billion liters of public stockpiles of jet fuel and diesel, $7.5 billion to help create extra storage, and $1 billion to support local biofuel production.

Fuel costs: A three-month cut in fuel duty and an exemption from the heavy-duty road user charge will result in a $3 billion revenue loss.

Defense: Including a five percent increase in the spending rate over the next four years, an extra $53 billion will be spent over the next 10 years.