Cast your mind back to February. Australia, reluctantly, has reawakened from its long summer slumber. Blue skies. Sandy beaches. Valentine’s Day.

But on 28 February, the Iran war changed everything. Australia was frighteningly vulnerable to the oil crisis and its dependence on overseas refineries and imported diesel was exposed. Within days, diesel was $3 per litre and rising fast. Bowsers in some regions ran dry; Australia, let’s not forget, is a country that rides on diesel.

Virtually everything is trucked across this great brown land, and households, already battered by the dual pressures of a cost-of-living crisis and the RBA ramping up interest rates, began to whisper the ‘R’ word – recession.

The government had to work fast to secure fuel supplies from Singapore, Japan and Korea. But this came at a cost. Prime Minister Anthony Albanese had to guarantee continuity of gas exports to Asian trade partners, thereby foregoing potentially lucrative export taxes from gas giants – tax revenues that could fund tax cuts, disability services and housing reform.

Since the 2025 election, the first-order priority on the Treasury’s agenda has been housing affordability. How to fix it; how to moderate property price growth; and how to reform a tax system that had disproportionately rewarded property investors and other asset-based wealth since 1999.

Should the government abolish negative gearing? Reduce the 50% capital gains tax (CGT) concession? Both?

Treasurer Jim Chalmers’ 2026 federal budget is built on three pillars – major tax reforms, spending cuts to counter inflation, and building national autonomy with a $10 billion domestic fuel security reserve, holding one billion litres of emergency fuel and diesel.

The Morrison government’s half-hearted COVID fuel reserve policy – stored in the US – was sold off by the Albanese government. The Iran war revealed how vulnerable Australia is to global energy crises. Better late than never.

Show me the money

Gross debt, which is the bigger debt number, is forecast to hit just shy of $1 trillion – $982 billion – this financial year. The reason economists cite gross debt is because we pay interest on the gross figure.

But under current budget forecasts, Commonwealth government debt will be reduced every year over the next 11 years. At about 50% of GDP, Australia’s debt is relatively low in comparison to most OECD countries, a little higher than South Korea’s.

The government also needed to respond to the RBA’s third straight interest rate rise on 4 May, wiping out all of 2025’s rate cuts. Michele Bullock, the Reserve Bank governor, was uncharacteristically blunt in her assessment of governments handing out money to households as one factor fuelling inflation.

Commonwealth government outlays will remain close to 27% of GDP in 2027 and 2028. Apart from the COVID-19 years, this is the highest level of federal spending since 1987. Much of this growth has been driven by public sector spending on the NDIS.

First, the hard numbers. For 2026-27, the deficit is forecast to hit $31.5b. Gone are the surpluses of the first two ALP budgets.

However, deficits have long been forecast through the late 2020s and into the 2030s. A key factor has been the exponential growth of the NDIS. The scheme’s budget is still increasing, but its annual growth rate is forecast at 1.5% per annum through 2030.

In the 2025 mid-year economic and financial outlook (MYEFO), the NDIS cost predictions hit $175 billion per annum after 2035, representing growth of more than 10% per year. The government’s cuts to NDIS address a major structural hole in the budget.

Gen Zee rules, OK?

Boomers and Gen X – they’ve had their time in the sun. For decades, assets have been taxed shallow, while wage-income has been taxed heavily. But the times, they are a-changing – negative gearing and capital gains tax reforms are pitched squarely at younger voters trying to break into the housing market.

But in the 2025 federal election, Zoomers and Millennials became the largest voting blocs, and younger voters gave the Albanese government a massive majority, as the Liberal Party experienced a national collapse in support. Little wonder, then, that the ALP has sought to reward the voters who will be instrumental in its re-election campaign in 2028.

That is the budget’s optimistic façade; it’s a softly-softly approach so as not to frighten the horses. But look more closely and the tax changes are built on pillars of salt. The government has gone only halfway in its reforms – asset classes receive firmer tax treatments, but there’s no shift in the income tax system. The $250 tax offset is, literally, peanuts. And doesn’t come in until mid-2028.

Millennials are also major investors in property, while both Gens Y and Z are also big-casino capitalists, holding a significant proportion of their wealth in shares and exchange-traded funds (ETFs). Younger voters will ask why the revamped CGT applies to share investments, as well as housing.

Moreover, gens Y and Z might question why older generations got gold-plated, tax-subsidised assets – while the ladder has been pulled up for them?

Negative gearing: Tax policy disguised as housing policy?

The Prime Minister’s U-turn on negative gearing and capital gains tax places the government squarely in the museum of broken promises. But the Treasurer’s selling point is the extant system is driving inter-generational structural inequality.

Jim Chalmers’ pitch is that negative gearing changes will open the front doors to an estimated 75,000 properties over 10 years for home buyers. But 7500 homes per year is a drop in the bucket in a housing and rental crisis.

Negative gearing (NG) will become a two-tiered system – one for owners of existing properties, and the revised rules, which permit NG for newly-built properties only. If you already own investment property, it’s grandfathered, meaning the old tax arrangements apply for as long as you hold the property.

In theory, that should incentivise investment in new builds, thus increasing supply. It could lead to older houses being bulldozed to make way for multiple new homes.

But criticisms that removing NG deepens the chasm of intergenerational inequality are well-founded. It means that purchasers of residential property since 1987 have their tax benefits preserved, while younger investors are denied similar NG opportunities, unless they invest in a new build.

Moreover, construction costs have gone through the roof since COVID and land is not going to get any cheaper. In fact, I will take bets that land prices are about to increase, as developers eye multi-home developments on lots with a single dwelling.

Capital Gains Tax reset – party like it’s 1999

Framed as an intergenerational fairness issue, the capital gains tax (CGT) will be replaced from 1 July, 2027, with cost base inflation-adjusted indexation rate  – yes, just like 1999 –  and a 30% tax rather than the flat 50% CGT discount, introduced by the Howard government.

For purchasers of new properties, investors will get to choose between the 50% CGT concession, or cost base indexation. Your principal place of residence – the family home – is unaffected by the changes and remains CGT free when held for a minimum of 12 months.

In some respects, the CGT reform represents an odd policy choice. Many countries have a flat CGT discount to allow for inflation and simplify calculations. An indexing system merely introduces unwelcome complexity, as it incorporates inflation indexing, and will likely affect the timing of asset sales.

In other words, you might be tempted to hang onto your investment property longer in order to maximise your capital gains and take advantage of NG – which the government has kindly allowed you to retain on your existing portfolio.

Asset owners close to retirement will be incentivised to sell once their income is low or zero, to minimise tax.

Trust, but verify

Trusts have been long overdue for reform. On the one hand, they play an important role in holding the assets of, say, multigenerational farming families, minors or people with disabilities. On the other hand, they can also be tax-minimisation vehicles to purchase property and other assets.

Discretionary trusts will now pay a minimum 30% tax on distributed income, which will hit wealthy families and individuals. But it’s also a safe bet that farmers will not be voting ALP in the next election.

Who wins?

The accountants, of course. Colour me 50 shades of grey.