Australians will not receive a bonus tax cut this year to compensate for tax hikes on asset owners as the Albanese government aims to rein in ballooning debt and avoid stimulus that might fuel inflation and interest rates.
This masthead has confirmed through cabinet sources that a potential one-off tax offset for wage earners is expected to be handed to voters at tax time in 2027 rather than this financial year.
Resisting the temptation to woo voters with a tax offset during a petrol price shock, Prime Minister Anthony Albanese and Treasurer Jim Chalmers have made a call to stick this year with the modest “top-up” tax cuts announced in last year’s budget – worth about $5 a week to people earning more than $45,000 a year – and due to kick in from July.
But a follow-up tax cut in 2027-28 will likely get supplemented as the government attempts to deliver tax relief to wage and salary earners without adding to the inflation pressures that prompted the Reserve Bank last week to lift interest rates to 4.35 per cent.
On Sunday, Chalmers pushed back on suggestions he was hiding a surprise tax cut to unveil on budget night, as he did last year.
“There are already tax cuts built into the budget and there’s a new instant deduction which provides ongoing relief, a bit of extra relief in the tax system. There’s the fuel tax cut as well,” he told Sky News.
Tax reform, spending cuts and policies aimed at increasing the speed at which the economy can grow are key parts of a budget Chalmers has described as the government’s most ambitious.
Housing is central to the budget. It will contain $500 million in new funding for faster approvals for homes, energy and critical minerals projects as part of the government’s overhaul of environmental planning laws.
On top of $2 billion to help councils and utilities’ providers build infrastructure such as roads and sewerage systems, almost $106 million will be spent on improving access to environmental data, while $70 million will be shared with the states to improve their approvals processes.
As part of the tax reform package, the government is expected to push ahead with changes to negative gearing which would restrict the tax concession to new builds, a return of the capital gains tax system to its original design and a minimum tax rate on trusts.
The government went to the last election promising not to touch negative gearing which has been part of the tax system since the 1930s. But Chalmers said the government recognised the tax system was making it more difficult for young people to access the housing market.
“People know that we understand there is a legitimate concern about how hard it is for younger people to get into the market, and so the budget is partly motivated by that,” he said.
The budget has been drawn up as inflation spikes, fuelled by the economic fallout of the US’ war with Iran. Key decisions and analyses have been delayed, with Chalmers putting the final touches to his budget speech on Sunday.
Chalmers revealed he will not forecast a budget deficit over the next four years on Tuesday night. As this masthead revealed, the treasurer will predict smaller deficits, which had been expected to average $35 billion annually.
He has promised net savings of $64 billion and the banking of all upward revisions in tax revenue. The single largest cut is an overhaul of the NDIS which is expected to save $35 billion over the next four years.
There are no plans, at this stage, to extend the cut in petrol excise due to end on July 1, which has reduced liquid fuel prices by up to 32 cents a litre. A decision is likely to be made in June, depending on whether the Strait of Hormuz has opened.
Liberal leader Angus Taylor will respond to the Albanese government’s plans with his own budget-in-reply speech on Thursday in which he is expected to confirm some of his party’s key policies.
Shadow treasurer Tim Wilson said his party needed to outline a “bold and confident vision” for the country to win back voters that have switched to the government or One Nation.
He signalled the Coalition was unlikely to back changes to capital gains tax or negative gearing, instead focusing on tax relief for working people with deep cuts to government spending.
“My position is this is clear, which is we need to be having a tax system that’s orientated towards encouraging wealth creation, jobs, and growth for the next generation of Australians,” he told ABC’s Insiders.
“Labor’s plan is to feed resentment and redistribution. We have wildly different views about how to build the future of the country.”
EY Australia chief economist Cherelle Murphy said the government risked adding to inflation pressures if it failed to restrict spending.
“Government spending, which is at a record high as a share of the economy, must avoid adding to inflation. We know some cost-of-living measures are planned but hope anything further is targeted only to those in need to avoid exacerbating the problem,” she said.
The budget will contain a series of measures aimed at helping the business sector, including the permanent retention of the $20,000 small instant asset write-off for small firms and the end of fees of up to $1600 on builders when they access necessary regulations governing construction.
But Australian Industry Group chief executive Innes Willox urged the government to go bold on tax reform.
“Piecemeal changes that simply raise revenue and plug holes in the budget bucket are not genuine reform. Nor will small and tokenistic tax cut handouts to households or businesses fix the dysfunctions of the tax system,” he said.
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.
Paul Sakkal is Chief Political Correspondent. He previously covered Victorian politics and won a Walkley award and the 2025 Press Gallery Journalist of the Year. Contact him securely on Signal @paulsakkal.14.Connect via X or email.From our partners
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