Following a landslide election victory in May of 2025, there was a question over whether the Albanese Government was willing to expend some political capital on making bold decisions, to push the envelope and watch it bend. Last year was clearly an ‘election budget’, whereas this year falls mid-cycle following that landslide victory. Treasurer Jim Chalmers’ closing comments stated that this budget demonstrates that the Government and the country are capable of both resilience and reform and that the hard road of reform was chosen. Time will tell how successful or costly those choices will be.
The list of winners and losers out of this budget will be long, given there is large spending, large cuts and savings, and significant reforms to productivity and taxation. For some people, on the taxation front, it is a case of be careful what you wish for: there has been growing demand for genuine tax reform for many years now and finally, it has been delivered. The intention, in Chalmers’ words, is to rebalance a system which is more generous to assets than it is to labour.
Whether focussing on investment income and assets was the right reform when consumption and resource taxation remains untouched is still a worthwhile discussion, but ultimately irrelevant when contemplating what the Government has laid out in front of us for the immediate future. Some changes are relatively simple and happen automatically (if you’re a wage earner), whilst others will necessitate careful thought and analysis once legislation is available.
Beyond taxation, continuing on from last year, there remains a strong focus on cost of-living relief, along with major investments in hospitals and PBS, Medicare, the Care Economy, housing and ongoing infrastructure. Other new themes that come with significant funding outside of tax measures include a variety of productivity initiatives, fuel and energy security (short and long term) and defence spending. The NDIS is a significant feature this year with $37.8 billion in savings, designed to preserve the program at sustainable levels going forward. This is a large part of the $61 billion saving package.
Twelve months ago the Government’s projections were for a deficit of $42 billion. A lot has changed in the last 3 months, let alone the last 12 months and some of that has resulted in increased Government revenue. The actual outcome and other key economic figures are:
- A deficit of $28.3 billion for 2025-26, with 2026-27 forecast at $31.5 billion (being $2.8 billion lower than forecast last year).
- Economic growth is expected to be 1.75% for 2025-26, with global growth to slow from 3.5% last year to 3% this year.
- Unemployment is expected to rise slightly, but remain around the mid-4% range.
- Inflation is expected to peak at 5% in the middle of the year. However, this is based on oil at $100 a barrel until the end of June, then easing to $80. In the worst-case scenario, oil is $200 a barrel and inflation comes in at 7%.
For more information please read our articles on the Personal & Investment Taxation or Business Taxation updates within the May 2026 Federal Budget.
