Tax relief for workers and pain for investors in budget
All workers will receive a $250 tax cut as part of a federal budget financed by a raid on investment properties, trusts and other investments.
In a budget centered around inequality between older and younger Australians, war in the Middle East and the country’s declining productivity, the government outlined plans to overhaul the tax system and signaled the potential for extra tax cuts in coming years.
“This will help rebalance a system that is more generous to assets than labor, and to rebalance a system where house prices are decoupled from incomes,” Finance Minister Jim Chalmers told parliament on Tuesday night.
More than 13 million Australians who are paid will automatically receive a $250 bonus payment on every tax return from July 2027, in addition to existing reductions announced in previous budgets.
The measure is funded by rolling back tax concessions for property investors, which Labor says will help around 75,000 Australians become homeowners.
This is despite Prime Minister Anthony Albanese promising to leave concessions untouched during the 2025 election campaign.
Dr Chalmers said house prices had risen by more than 400 per cent since 1999, but average incomes had increased by less than half that rate.
There are also further potential tax cuts as a result of the government’s savings, the treasurer said.
According to budget documents, Australia will run a $28.3 billion deficit this financial year; This represents an increase of approximately $8.5 billion over previous estimates.
While future deficits are forecast to be smaller than previously expected, the country’s fiscal position is not expected to return to surplus until 2035.
“The medium-term budget position is much stronger and more sustainable, creating more room for future tax cuts,” Dr Chalmers said.
Under restrictions aimed at wealthy investors, negative gearing – under which a landlord can deduct losses on a rental property from their wages at tax time – will be limited to new-build homes from July 2027.
Homes purchased before the announcement will be exempt from the change until sold.
The current 50 per cent reduction in capital gains tax will also be overhauled, with the measure on existing properties tied to the current inflation rate from July 2027 and a minimum tax rate of 30 per cent applying.
So the changes will not affect Australia’s housing project; Investors in new construction will be able to choose between old and new tax plans.
Gains from properties built before 1985, which were previously exempt from CGT, will also start to be taxed at an inflation-adjusted rate from July 2027.
A 30 percent minimum tax would also be imposed on discretionary trusts, which are often used by wealthy families to divide income among family members and minimize tax.
The changes to investment taxes combined would bring in an extra $8 billion.
The money will be spent on the $250 “Working Australians Tax Cut” and the reintroduction of loss carryback for businesses and start-ups.
Starting in July, companies making less than $1 billion will be able to offset this year’s tax losses against taxes paid up to two years ago.
The government says the change will encourage businesses to invest and make them more resilient to boost Australia’s economic growth.
“These changes will level the playing field for workers and first home buyers and support investment in productive assets, including new housing supply,” Dr Chalmers said.
The government is now bracing for a pushback from landowners and wealthy Australians unhappy with the negative outlook, capital gains and trust reforms.
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