Today, we could see the most consequential stack of papers in decades

A NALYSIS: The current federal budget could be the most consequential in decades, with the government set to unveil a major tax reform package and brutal spending cuts.

Within hours, Treasurer Jim Chalmers will deliver “ambitious” and “responsible” budget documents outlining his plan to tackle intergenerational inequality and help combat rising inflation and national debt.

He has tried to downplay the tax reform package, telling reporters last week that the main play will deliver billions in savings.

SCROLL DOWN FOR DETAILS ON WHAT AUSTRALIANS CAN EXPECT IN THE BUDGET

“What you’ll see in the budget is that, grossly speaking, there will be more dollars of savings than dollars of revenue increases. There will also be more dollars of savings than dollars of tax reform,” he said last week.

“The point I want to make there is that austerity and spending control will do a lot of the heavy lifting in the very responsible budget that (Finance Minister Katy Gallagher) and I will deliver.”

But the all-but-confirmed changes to the capital gains tax (CGT) rebate and negative gearing are what many have their eyes on.

KPMG chief economist Brendan Rynne said this was the most “consistent” budget for taxpayers in about a decade.

“In many ways, assuming everything we’ve already been told is true, there’s a lot more in this budget than what we’ve seen for a while,” he said.

‘Particularly around the tax side of the budget, some of the changes are quite significant from a policy perspective.

“I suppose what will also be interesting is from the spending side is what the government is proposing in terms of hopefully reducing nominal spending, so actually a decrease in government spending, rather than just a leveling off of that spending or even a small increase.”

As far as Rynne can remember, this could be the most meaningful budget since Joe Hockey’s first in 2014.

Momentum has been building for the government to tackle the generous double tax benefits of negative gearing and the CGT rebate, after a Senate Greens inquiry in March supported what some critics have said: the two concessions are flawed and benefit investors over first home buyers.

And while the government has not confirmed that these changes will happen in the budget, it has not ruled them out either, despite being given ample opportunity to do so.

Supporters of the policy, such as the Housing Industry Association, believe the changes could worsen the rental crisis by discouraging real estate investment during a housing crisis.

However, the government formulates its fiscal policy in social terms, arguing that the changes are necessary to tackle intergenerational inequality. 

“We have serious challenges in the housing market in terms of how difficult it is for people, especially young people, to gain a foothold in the market,” Chalmers said on Sunday. 

Here’s everything we expect to see change if the budget passes today:

$300 more back at tax time

One speculation is that the federal government is offering taxpayers earned income compensation, which could see people pay between $200 and $300 less on their taxes this year.

The report inside The Australian framed the compensation as a one-time cost-of-living relief, rather than an ongoing offer.

Albanese has declined to confirm whether the compensation will be included in the budget.

“There’s a lot of speculation about budgets and that’s what’s happening. Some of it is right, some of it is wrong,” he said last week.

In a press conference with Finance Minister Katy Gallagher, Chalmers said the budget would focus more on responsible spending and savings than on expected tax reforms.

“What you’ll see in the budget is that, grossly speaking, there will be more dollars of savings than dollars of revenue increases. There will also be more dollars of savings than dollars of tax reform,” he said last week.

“The point I want to make there is that austerity and cuts will do a lot of the heavy lifting in the very responsible budget that Katy and I will deliver.”

Gallagher said the budget will include savings from each ministry, with savings already identified in defense, NDIS and external labor.

“This is essentially an extension of the existing savings measure we introduced in previous budgets, and it will also deliver significant savings from unallocated funding to a number of departments,” she said.

Tax breaks for electric cars have been reversed

Chalmers and Energy Minister Chris Bowen announced last week that they will scale back the electric vehicle benefits discount (FBT) from April 2027, a move estimated to deliver $1.7 billion in savings over five years. 

“The current New Vehicle Efficiency Standards have led to a dramatic increase in the availability of affordable EV models, and now is the right time to target the FBT exemption to these cars,” they said in a joint statement.

“The new rules will encourage manufacturers to offer more affordable and cheaper EVs to the Australian market.”

As of April 2027, the full discount will only apply to electric vehicles costing $75,000 or less.

Electric vehicles that cost more than $75,000, but less than the luxury car tax threshold, will receive a 25 percent discount on their taxes.

From April 2029, all electric vehicles below the luxury car threshold will receive the 25 percent discount.

The changes come after the popular policy saw an increase in the number of electric vehicles on Australian roads, costing the budget $1.4 billion in 2025-26, up from an initial forecast of $90 million.

Changes include stricter criteria, standardized and evidence-based assessments, fraud prevention and reduced spending on social and community participation per participant and daily activities.

Early modeling shows the changes will reduce the number of people on the NDIS from 760,000 to 600,000 by the end of the decade. 

“It costs too much and is growing too fast,” Butler said in April.

“We cannot afford for the NDIS to continue to grow at its current rate.”

US President Donald Trump has pressured Australia and NATO countries to increase their defense spending, complaining that the US is doing much of the heavy lifting.

Railway line between Sydney and Canberra

An additional $100 million will be provided for upgrades to the Sydney-Canberra rail line.

The federal government will foot half the bill, with the NSW and ACT governments contributing $25 million each. 

There will be approximately five years of ongoing upgrades, including studies into new express services, new barriers and lights at level crossings, improvements to track lines and switches and improvements to stations and stables. 

The 321 kilometer corridor includes the Sydney Trains-operated line between Sydney Central Station and Macarthur, the Southern Line through the Southern Highlands to Goulburn and the Country Regional Network branch to Canberra.

The government has previously earmarked almost $2.8 billion for the rail network and the construction of a high-speed line between Newcastle and Sydney.

It was estimated that the measure would reduce fuel costs by 26.3 cents per liter and almost $19 on a 65 liter tank.

The Australian Competition and Consumer Commission is monitoring fuel prices across the country to ensure cost savings are passed on.

Chalmers has ruled out an extension of the fuel duty cut and the abolition of the Road User Charge for heavy vehicles beyond June.

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