Feeling prosperous? Dream of becoming rich? Adverse towards higher taxes? This is not your Budget.
The Labor Government’s 2026-27 spending and taxing plan is what used to be known as “soak the rich” policy. Today it is called helping “fulfilling our obligations and responsibilities to the generations to come”.
Two tax increases will hit the wealthy and those who aspire to create wealth. The hikes will be balanced by a tax cut only meaningful for the lowest paid.
In an example of devilishly clever political timing, the $250-a-year “Working Australians Tax Offset” will start in the second half of 2027, just before an election is due in early 2028. The cut, which will operate in perpetuity, is worth $6.4 billion over the first two years.
The pain from the Budget’s big tax hikes won’t kick in until after the election. Higher capital gains tax on investments and the end of negative gearing on non-newly built houses and apartments will start generating revenue for the Government in the 2029 financial year.
Third term taxes
When the Albanese Government potentially enters its third term, that revenue will come pouring in. From $1.4 billion in 2029, the take from higher capital gains tax and fewer negative gearing deductions will jump 64 per cent in a year to $2.3 billion. Future increases aren’t forecast, but could be substantial.
The introduction of a 30 per cent minimum tax on trusts, legal structures often used by parents to bequeath assets to children, will bring in $4.5 billion extra tax in its first year, in 2030.
In terms of revenue raised, the tax increases and cuts almost balance each other out. The pre-election cuts will help the working poor, while the wealthy and aspirational won’t feel the pain until after the election.
In other words, Dr Chalmers and Anthony Albanese are timing wealth redistribution in a way that should minimise electoral damage.
In a press conference at Parliament House, Dr Chalmers predicted a scare campaign against the tax rises based on “lies”.
“I acknowledge this is a controversial change,” he said. “We can’t let the intersection of the housing market and tax system lock out so many people.”
Housing prices will grow about 2 per cent slower because of the tax hikes, the government reckons.
Taxation changes aren’t the only Budget decisions with a timing slant.
Inflation pressure
The Budget will increase spending $8.8 billion over the next two years, after a jump in the current financial year, before massive spending cuts are promised in the second half of the four-year outlook.
Which means no public service or high-profile welfare programs before the election.
The rationale for the spending is to help people during a tough time. “At a time when Australians are under pressure, this Budget delivers more help with the cost-of-living and new tax cuts for workers,” Dr Chalmers said.
While the assistance sounds sensible, injecting more cash in to the economy will make the problem worse. Over the next five years, the Government will spend $150 billion more than it receives, money that will have to be funded by debt.
Independent, non-partisan economists blame government spending for worsening inflation, which the federal Treasury predicts will hit 5 per cent next month.
Cheaper housing
The more the Government spends, the higher the Reserve Bank of Australia will have to raise interest rates.
A quarter-point rate hike costs the average mortgagee about a $1000 a year, or four times Dr Chalmers’ annual tax cut. On the other hand, higher rates will likely drive home prices down, amply fulfilling the Government’s goal to make housing more accessible for young people.
Unfortunately, one of the objectives of higher interest rates is greater unemployment, and the least skilled are usually the first fired. Which means only those young people fortunate enough not to lose their jobs will have a better shot at home ownership.
Despite Dr Chalmers’ use of the word “responsible” six times in his speech, the Budget contains few policy changes that could make the economy more efficient.
The productivity policy, which Dr Chalmers has spent a year hyping, included low-impact measures, including a government website that will explain artificial intelligence. ChatGPT, watch out.
Dr Chalmers said a couple of times today: “This Budget is ambitious in the face of adversity.”
A more accurate description might be: Adversity is being used to justify adding even more taxes on to people who already pay most of them.
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