At 7:30pm tonight, Jim Chalmers delivered his fifth budget announcing that this is the most important and ambitious budget in decades… important because the world is throwing a lot at us and this budget is about helping Australia deal with those challenges, and ambitious because we have so much going for us and this budget is about Australia seizing those opportunities.

The Treasurer said that this budget is a responsible budget and a reforming budget, which builds resilience and bolsters our economy, and that the core of this budget is an economic strategy with five main parts:

1. Getting through the global oil shock and building resilience;
2. Taking the pressure off people where we can;
3. Making the economy more productive to lift living standards over time;
4. Reforming the tax system for workers, businesses, and future generations;
5. Making the budget stronger, more sustainable, and helping to take the pressure off inflation by saving more than we spend.

Key Forecasts

• $28.3B deficit for 2025-26, $31.5B deficit for 2026-27, $31B deficit for 2027-28, $34.4B deficit for 2028-29, and $25.3B deficit for 2029-30;
• 2.25% GDP growth for 2025-26, 1.75% GDP growth for 2026-27, 2.25% GDP growth for 2027-28, 2.5% GDP growth for 2028-29, and 2.5% GDP growth for 2029-30;
• Forecast inflation for 2025-26 is 5%, 2.5% for 2026-27, 2.5% for 2027-28, 2.5% for 2028-29, and 2.5% for 2029-30;
• Gross debt for 2025-26 is $982B, $1.05T for 2026-27, $1.12T for 2027-28, $1.19T for 2028-29, and $1.25T for 2029-30;
• Net debt for 2025-26 is $556B, $616.6B for 2026-27, $668.8B for 2027-28, $725.5B for 2028-29, and $767.8B for 2029-30;
• 4.25% unemployment is expected for 2025-26, 4.5% for 2026-27, 4.5% for 2027-28, 4.5% for 2028-29, and 4.25% for 2029-30;
• 3.25% wages growth is expected for 2025-26, 3.5% for 2026-27, 3.5% for 2027-28, 3.5% for 2028-29, and 3.75% for 2029-30.

Key Tax Changes

Income Tax Cuts

1. A new Working Australians Tax Offset of $250 per worker will apply from 1 July 2027 and will be paid each year at tax time. This increases the effective tax‑free threshold for Australian workers by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset);
2. From 1 July 2026, the 16% tax rate on taxable income between $18,201 and $45,000 will drop to 15 per cent. From 1 July 2027, the rate will drop to 14%;
3. From 1 July 2026, a new $1,000 instant tax deduction will apply for workers. This instant tax deduction allows workers to lower their taxable income from work by $1,000 without keeping receipts when they lodge their tax return.

Business Tax Changes

1. From 1 July 2023, small businesses with annual turnover of $10m or less are able to claim an instant asset write off deduction on the purchase of business assets costing up to $20,000. This benefit has been extended permanently from 1 July 2026;
2. From 1 July 2026, loss carry back for companies with up to $1B in turnover will apply permanently. This allows eligible companies that make a loss in the current income year to use that loss to get a refund against tax paid in the prior two income years;
3. Loss refundability is being introduced to support new start‑up businesses. From 1 July 2028, small start‑ups in their first two years of operation will be able to get a refund for tax losses, up to the value of fringe benefits tax and withholding tax paid on employee wages;
4. The current FBT exemption for electrical vehicles will change from 1 April 2027. Vehicles costing between $75,000 and the Luxury Car Tax threshold ($91,387) will get a 25% discount on Fringe Benefits Tax instead of a 100% discount. This 25% FBT discount will extend to all electric vehicles from 1 April 2029. Electric vehicles costing less than $75,000 will continue getting the full FBT exemption if the arrangement commences before 1 April 2029.

Capital Gains Tax

A significant but anticipated change has been announced to return the Keating-era rules with inflation adjusted indexation from 1 July 2027. This will apply as follows:

1. The current discount method, where a capital gain is reduced by a 5o% discount if an asset was held for 12 months or more, will be replaced by inflation adjusted indexation. This will index the cost of the asset by inflation so that tax is only paid on the growth in excess of inflation;
2. The 50% discount method can continue to be used for new property investments;
3. A minimum tax rate of 30% will apply to capital gains – this means that investors can no longer benefit from delaying the realisation of capital gains until their incomes are lower;
4. The inflation adjusted indexation will apply to gains on pre-1985 assets from their 1 July 2027 market values. This means that capital gains on these assets will no longer be completely exempt and the growth in excess of inflation from 1 July 2027 onwards will be taxed;
5. Investors will be able to seek a valuation or use a formula tool provided by the tax office to determine the market value of their assets on 1 July 2027 and then start using the new indexation method;
6. Main residences will continue to be exempt from Capital Gains Tax;
7. The small business Capital Gains Tax concessions remain unchanged.

Negative Gearing

The Treasurer announced the following changes to negative gearing for residential properties, which will apply from 1 July 2027:

1. Negative gearing will be limited to new builds. New builds include the following:
   1. A newly constructed apartment bought off-the-plan;
   2. A duplex constructed through a knock-down rebuild replacing a single, freestanding house;
   3. Any residential construction on previously vacant land. This excludes a house constructed through a knock-down rebuild replacing an older, smaller house;
   4. A newly built property which is occupied for less than 12 months before being first sold.
2. These changes do not impact current residential property investments and will only apply to residential properties purchased from 7:30pm tonight.

Discretionary Trusts

Discretionary trusts have been used for many years to split income with beneficiaries on lower tax rates. From 1 July 2028, a minimum tax 30% will apply to discretionary trust income and this tax will be imposed on the trustee of the trust. The beneficiaries of the trust will declare their distributions as they do now and be assessed at their tax rates and receive a non-refundable tax offset equal to the 30% tax paid by the trustee. This change, therefore, removes the benefit of distributing to beneficiaries on tax rates below 30%.