The budget papers show the government has delivered a stronger fiscal position than previously expected, with the underlying cash deficit forecast at $31.5 billion in 2026–27, an improvement of $2.8 billion since the mid-year update.
Across the forward estimates, the budget position has improved by a cumulative $44.9 billion, reflecting higher receipts, policy savings and reprioritisations.
Treasurer Jim Chalmers said the budget was focused on “making the budget stronger, more sustainable, and helping to take the pressure off inflation by saving more than we spend.”
The government said it had identified $63.8 billion in savings and reprioritisations, with net policy decisions improving the budget by $26.1 billion after accounting for provisions.
Chalmers said the improvement showed “the heavy lifting on Budget repair is being done by savings and spending restraint, not tax increases.”
Despite the improved near-term position, the budget is still expected to remain in deficit across the forward estimates, with gross debt forecast to reach $1.051 trillion by 30 June 2027, $18 billion lower than forecast at MYEFO.
The budget papers project the underlying cash balance will return to balance in 2034–35, before moving back into surplus in 2036–37, underscoring the government’s argument that near-term spending has been paired with a longer-term fiscal repair strategy.
Superannuation
The budget also includes $7.6 million over four years from 2026–27, and $1.4 million a year ongoing, for ASIC, the Office of the Australian Auditing and Assurance Standards Board and Treasury to strengthen governance requirements for managed investment schemes.
ASIC will partially meet the cost of the measure through cost recovery, while the government will also consult publicly on new data collection powers for managed investment schemes.
The measures come as the government separately consults on options to strengthen the superannuation performance test, with the aim of removing unintended barriers to investment and ensuring the framework remains fit for purpose.
The budget papers also noted the government has passed the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 and the Superannuation (Building a Stronger and Fairer Super System) Imposition Act 2026, which received Royal Assent on 13 March 2026.
The financial impacts of that policy were reflected in the 2025–26 MYEFO measure covering superannuation reforms, including the boost to the Low Income Superannuation Tax Offset (LISTO) and practical changes to Better Targeted Superannuation Concessions.
Final policy parameters are expected to increase receipts by $20 million over five years from 2025–26.
CGT/Negative gearing
The budget’s tax and housing package includes major changes to negative gearing and capital gains tax concessions, with the government arguing the reforms will shift tax support towards new housing supply and improve first-home buyer access.
From 1 July 2027, negative gearing will be limited to new builds, while existing arrangements will remain unchanged for properties held before Budget night.
Investors who buy established homes after Budget night will still be able to deduct losses against residential property income and carry forward unused losses to future years, but they will not be able to deduct those losses against other income such as wages.
The government will also replace the 50 per cent capital gains tax discount with a discount based on inflation and introduce a minimum 30 per cent tax on gains from 1 July 2027.
The reforms will only apply to gains arising after that date, while investors in new builds will be able to choose between the existing 50 per cent CGT discount and the new arrangements.
The budget papers said the negative gearing and CGT changes are expected to support an additional 75,000 homeowners over the decade, as the government seeks to rebalance housing tax settings away from established investment properties and towards home ownership and new supply.
Super investors, including SMSFs, will be exempt from changes to the capital gains tax discount announced in tonight’s budget.
Inflation
Inflation, which rose steeply last month to 4.6 per cent on an annual headline basis, is expected to rise to 5 per cent in the June quarter as a result of the war in Iran which is impacting fuel prices. He is optimistic Australia can avoid a recession but there could be an inflation spike beyond 5 per cent in the worst-case scenario.
“We were already dealing with price pressures in our economy, but the Treasury’s now forecasting inflation to peak around 5 per cent in the middle of the year because of the conflict. For the same reasons, it’s expecting growth to come in half a percentage point lower next financial year, to be 1.75 per cent overall.
“Treasury also presents a more severe scenario where the oil price peaks at $200 and takes three years to fall back down. We would still avoid a recession, but unemployment would spike to pre‑pandemic levels and inflation would peak above 7 per cent,” Chalmers said.
Expanding further in the Treasury’s budget papers, these stated: “The impact of high global oil prices is expected to significantly add to inflationary pressures in the near term, with headline inflation forecast to be 5 per cent through the year to the June quarter 2026.
“Higher inflation is expected to weigh on growth in real incomes and household consumption. As a result, growth in the Australian economy is forecast to slow from 2.25 per cent in 2025–26 to 1.75 per cent in 2026–27.
“Headline inflation is forecast to decline to 2.5 per cent by the June quarter 2027, and abstracting from the impact of fuel prices, it is forecast to sustainably return to the RBA’s target band in the middle of 2027.”
