2026 Federal Budget: Major Tax Reforms Reshape Housing Market

Treasurer Jim Chalmers delivered the 2026 federal budget on May 12, introducing sweeping tax reforms targeting property investment, capital gains, and trusts. The government projects these changes will help 75,000 Australians purchase their first home over the next decade.

The budget faces significant political opposition, with the Coalition vowing to repeal key measures and One Nation experiencing a surge in public support.

Housing and Tax Reforms

"I think the time is right for these kinds of reforms and for this level of ambition." — Treasurer Jim Chalmers

The budget's central measures include:

Negative Gearing

Restrictions on negative gearing take effect from July 2026. Investors can no longer deduct losses from existing investment properties against their income tax. The deduction will be limited to newly built homes, a policy intended to incentivize new construction.

Capital Gains Tax (CGT)

The current 50% CGT discount for assets held longer than 12 months will be replaced with a model that taxes gains after adjusting for inflation, based on the consumer price index. A minimum 30% tax rate on capital gains will also be introduced.

• Effective date: July 2027
• Grandfathering: Existing investments are expected to be protected from the new rules

Trusts

A minimum 30% tax rate on income distributed from discretionary trusts has been introduced.

Projected Market Impact

Government modeling indicates the combined reforms will reduce house price growth by approximately 2% over two years relative to current settings. The impact on rents is projected to be minimal, with Treasury estimating an increase of less than $2 per week at median rent.

Key Budget Figures

Other Budget Measures

Working Australians Tax Offset (WATO)

A one-off $250 tax offset for wage earners, available during the 2027-28 tax season.

National Disability Insurance Scheme (NDIS)

The government will cut $35 billion from the NDIS over four years, aiming to lower the scheme's annual growth rate. This represents the largest single spending reduction in the budget.

Health Insurance

The discount on the private health insurance rebate for people over 65 will be removed, saving $3 billion.

Hospitals

An additional $25 billion will be allocated to state hospitals over five years.

Fuel Excise

The temporary halving of fuel excise is expected to end on July 1. A decision on a potential extension is pending.

Infrastructure

A $2 billion fund will support roads, sewerage, and power connections for an estimated 65,000 new homes.

Spending Level

Total government spending is forecast to grow to 26.8% of GDP, the highest level since the COVID-19 pandemic.

Housing Market Impact

The budget's tax reforms have contributed to a cooling property market, though other factors are also in play.

"For a long period of time, young people have tried to save for a home. Another year has passed since the election and not enough has changed." — Prime Minister Anthony Albanese

Auction Clearance Rates

Clearance rates in capital cities have fallen below 50%, levels not seen since the early COVID-19 pandemic.

Price Forecasts

Major banks have revised their forecasts downward:

• ANZ predicts an 8% fall in Sydney and Melbourne house prices in 2026
• National Australia Bank (NAB) forecasts 6-7% drops in Sydney and Melbourne
• Westpac reported a 20% decline in housing investor loan applications** in the three weeks following the budget

Other Factors

The Reserve Bank of Australia (RBA) has raised interest rates three times since February 2026 to 4.35%. Global oil price increases linked to the conflict in Iran are also contributing to economic uncertainty.

Political Reactions

Coalition

Opposition Leader Angus Taylor and Shadow Treasurer Tim Wilson have called the budget an "assault on aspiration" and vowed to repeal the negative gearing and CGT changes if elected. The Coalition has proposed an alternative policy to index income tax brackets to inflation and cap net overseas migration to the number of new homes completed annually.

"This is an assault on aspiration." — Opposition Leader Angus Taylor

"Deceit and betrayal... these changes will kill aspiration." — Shadow Treasurer Tim Wilson

One Nation

The party has seen a surge in support following the budget announcement. A Redbridge Group poll showed One Nation's primary vote at 30%, ahead of Labor (28%) and the Coalition (20%). One Nation leader Pauline Hanson has stated she would not rule out running for a House of Representatives seat.

Greens

Leader Larissa Waters criticized the changes as "tinkering around the edges," arguing that 95% of the existing rules remain intact. The Greens have not yet decided whether to support the legislation in the Senate.

Labor

Prime Minister Anthony Albanese and Treasurer Chalmers have defended the reforms as necessary to address intergenerational inequality and rebalance the tax system. Chalmers acknowledged the government had broken a pre-election promise not to alter negative gearing and CGT, but argued that changed circumstances, including the housing crisis, justified the shift.

Former Prime Minister Paul Keating

Has endorsed the CGT changes, describing them as a marginal adjustment necessary to improve housing affordability.

Economic Forecasts

• Growth: Treasury forecasts economic growth of 1.75% for 2026-27, rising to 2.25% the following year
• Inflation: Projected to decline from a peak of 5% in mid-2026 to 2.5% in 2027-28
• Interest rates: The RBA is not expected to cut rates until at least late 2027
• Warning: Former Treasury Secretary Dr. Martin Parkinson has warned of a risk of "stagflation" — high inflation combined with weak economic growth

Former RBA Governor Philip Lowe described the tax changes as a "redistribution agenda" that will damage investment and productivity.

Former Treasury Secretary Ken Henry welcomed the budget's focus on intergenerational equity.