The 2026 budget is shaping up to be one of the most unusual Australia has seen in two decades. It’s also a step change for Labor in the sense that Anthony Albanese and his team are about to do something they’ve mostly avoided doing for the past four years in government – spending a considerable amount of political capital in one hit.
The savings outlined for the National Disability Insurance Scheme and the expected reduction in the capital gains and negative gearing tax breaks for investors – which the prime minister has previously opposed – are a big deal.
Typically, in the weeks leading up to a federal budget, stories begin to appear that reveal the government of the day is preparing to boost spending on healthcare, deliver a tax cut or target dole bludgers or double-dippers or some other “unworthy” type. In the past 20 years or so, it’s hard to recall a pre-budget period that has been so dominated by discussion of both structural savings that will be implemented, such as with the NDIS, and revenue-raising measures such as the looming tax changes.
The government is making a deliberate choice: this budget will create losers (not in the pejorative sense) who will quite reasonably be able to claim they are worse off after the changes, or eventually will be. Making such decisions is not what any government wants to do; even when tough measures are taken, they are often played down rather than highlighted.
Joe Hockey’s first budget in 2014 was an exception, as it tried to make a virtue of being hairy-chested and went just about as hard as this Jim Chalmers budget looks likely to do, with savings in portfolios including health, education and communications. But Hockey didn’t attempt as much on the revenue-raising side and that budget was a disaster.
Chalmers won’t make Hockey’s mistake, but the sales job he does will be critical.
When in opposition, Albanese dumped the negative gearing and capital gains tax policies that his predecessor, Bill Shorten, had taken to the 2016 and 2019 elections, although it took the new leader a little time because of internal resistance in the caucus. A rearguard action was fought by Labor MPs who believed the twin policies had nearly won Labor the poll in 2016, rather than costing it victory. And those same MPs, some of them very senior factional players, did not blame those policies for the loss in 2019. Rather, they argued, that election was lost because the Labor opposition had too many policies, and the Scott Morrison-led Coalition had a very good campaign.
So why Albanese’s change of heart?
In an interview with this masthead, he would not confirm specific changes to CGT and negative gearing but agreed the government would do more to tackle intergenerational inequity. In other words, the Millennials and Gen Zs locked out of the housing market for a range of reasons have won the argument on inequity and we are about to see the response.
“I’m not talking about the specifics, obviously, but Labor governments always do the big things,” the prime minister said. “If you look at what we’ve done during the year [since the election], we’ve ticked off all the things that we promised. You know, the aged care reforms, the guaranteed childcare, the Medicare Urgent Care clinics are open, the cheaper beer excise, freezing the student debt – everyone has received that payment – the work we’ve done in health across the board.
“But I also said in that speech at the Press Club [in June 2025], it wasn’t the limit of our ambitions. So how do we set Australia up for the future? And that’s why I think that resilience theme of the budget is so important.”
As senior economics correspondent Shane Wright has revealed in these pages, older and wealthier Australians have increased their ownership of rental properties by up to 1500 per cent in the past two decades, according to new data from the Australian Taxation Office, while younger Australians have been priced out of the investment market.
So, with the tax changes, many of the people who lose out will be those who have benefited most from the current settings. Labor’s calculation is that there isn’t a lot of sympathy for Baby Boomers out there.
Labor isn’t spending all its capital in this budget, though. A 25 per cent tax on gas exports is off the table – despite the best efforts of members of the crossbench and the likes of the left-leaning Australia Institute. Even sections of the Labor caucus support such a tax. The institute’s co-executive director Richard Denniss regards this as a missed opportunity and suggests that by 2028, one of the major parties will cave in and tax gas exports more.
“It’s a question of who will blink first,” Denniss says. “Someone will, but I’m not sure who yet. At the moment, the major parties [Labor, the Coalition and One Nation] are like three kids staring at a bunch of lollies and agreeing no one will take the lollies. That’s just not gonna last. Meanwhile, you’ve got Clive Palmer taking out ads calling for a gas tax, people are incandescent on talkback radio about it, and we have to pay for health, education, frigates and subs.”
Three months ago, I wrote that the 2026 budget is Treasurer Jim Chalmers’ best chance to deliver serious tax reform. At the time, the first smoke signals were beginning to emerge from the ministerial wing that Chalmers was serious. The unanswered question at the time was whether the treasurer could get his prime minister over the line.
It now looks likely that that has occurred and that the CGT change, for example, will reverse the generous changes made by Peter Costello in 1999 and return to the original, less generous system put in place by Paul Keating. The flow-on effect of this, in theory, is that fewer investors will put money into housing and so first home buyers will have fewer competitors on auction day.
It isn’t hard to find a Labor person who has been disappointed with the pace of reform under this government in its first four years. Labor is finally ready to take bigger risks in this budget, at a time of rising inflation, further interest rate rises on the horizon and high fuel prices persisting.
It’s also setting a trap for the opposition, which is divided over some of the tax changes but which supports NDIS cuts.
The next test for Labor will be whether it can hold its nerve once the complaints start from the losers in this budget.
James Massola is chief political commentator for the Herald and The Age.
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James Massola is chief political commentator. He was previously national affairs editor and South-East Asia correspondent. He has won Quill and Kennedy awards and been a Walkley finalist. Connect securely on Signal @jamesmassola.01Connect via X or email.