Further tax cuts to every worker, as Chalmers flags generational tax change

The Albanese government has been accused of taking an “unnecessary” backwards step for housing supply, after it confirmed a huge tax change. The Real Estate Institute of Australia said the changes to negative gearing and capital gain tax discounting would instead undermine housing supply. REIA resident Jacob Caine said modelling by Qaive and Tulipwood indicated the reforms may result in around 25,500 fewer homes being built over the next five years. “Australia is already well behind the National Housing Accord target of 1.2 million new homes, so we need policies that support investment and new housing supply, not policies that make delivery harder,” Mr Caine said. “Private investment plays a critical role in Australia’s housing system. “At a time of acute rental stress and chronic undersupply, policy settings should be encouraging more investment into housing, not creating uncertainty or reducing confidence.” Treasurer Jim Chalmers defended his policy, despite it overturning an election promise. “Obviously we are aware that people who want to defend the current tax arrangements or they think the current housing market is working just fine, they will want to focus on this element, the political element of it” he says. Negative gearing and capital gains tax exemptions Leading the tax reforms were changes to negative gearing and the capital gains tax (CGT) discounts. Under the changes to CGT, the 50 per cent discount has been scrapped and returned to indexation, while negative gearing will now be restricted to new builds. Current investors will be given a one year grace period before the changes take affect for assets bought after July 1, 2027. Investors will be expected to have their assets valued independently or by the tax man by that date for tax purposes. “Since 1999, house prices have risen over 400 per cent, more than twice as fast as average incomes,” Mr Chalmers said. “Our tax changes will help about 75,000 Australians achieve the dream of home ownership”. In total it is expected to raise $3.6bn in 2027-2028 financial year. National Shelter - a peak body that aims to improve housing outcomes for low-income Aussies - called the budget a “turning point for housing” but urged the government to go a step further help increase home ownership. “It respects existing investment decisions, avoids unnecessary market disruption, and starts to unwind tax settings that have long skewed housing outcomes, disproportionally impacting low-moderate households,” National Shelter chief executive Jackson Hill said. “This budget begins to rebalance the system back towards first home buyers, renters and the delivery of new homes that the country desperately needs.” But Mr Hill warns more still needs to be done. According to Mr Hill, Australia faces a structural housing shortfall that tax reform alone will not resolve, as the country is projected to be short around 640,000 social and affordable homes by 2041. Tax breaks for Australian workers In a further restructure of the taxation system, Mr Chalmers announced modest tax cuts for the 13.3 million Australian workers. Starting from July 1, 2027 a new $250 “Working Australians Tax Offset” (WATO) will be introduced, costing the government $6.4bn in lost revenue over the next four years. The budget papers show the WATO will increase the effective tax-free threshold by $1785 to $19,985 for workers (or to $24,985 for workers receiving the Low-Income Tax Offset). Mr Chalmers said it would be “paid each year, ongoing and automatically in your tax return”. The government will also introduce the previously announced $1000 instant deduction for work-related expenses. From the 2026-27 income year, Australian workers will be able to claim an instant deduction instead of needing to itemise and claim work-related expenses. Mr Chalmers said Tuesday’s announcement built on previous tax cuts announced in the last two federal budgets, which combined will add up to $2816 a year by 2028. “Averaged out over the year, our three tax cuts, instant deduction and the new offset are the equivalent of up to $54 back in the average earner’s pocket each week,” Mr Chalmers said. Business and tradies Under a boost for employers, the government also will permanently extend the $20,000 instant asset write-off for small businesses with a turnover under $10m. The instant asset tax write-off was bumped up from $1000 to $20,000 but was due to revert back at the end of the financial year. “We’re building a better tax system for businesses, with over $3.5bn in new measures that lower taxes, to encourage investment and innovation,” Mr Chalmers said. “We’ll permanently introduce two-year loss carry-back for all companies up to $1bn in turnover – bolstering resilience and risk taking. “And we’ll introduce loss refundability for start-ups, to help new businesses invest and grow in their first two years.” Figures released prior to the budget revealed income tax revenue continues to be the highest proportion of total revenue, increasing from 47.7 per cent in 2025-26 to a forecasted 53 per cent in 2035-36. All other revenue sources are projected to decline as a share of total revenue. How does it work? In an example provided by the Treasury Department, Jane the property investor buys a house for $800,000 in 2022 before it doubles to $1.6m by 2032. Under the transition system, her tax system would be split into two five-year blocks, one before the changes commence from July 1, 2027, and the second afterwards. Jane will have to get her house valued at July 1, 2027 for tax purposes, which the example assumes the house is worth $1,131,371. From the second five-year period she would pay capital gains taxes less indexation. In this example it would be $468,629 less indexation of $319,958. Assuming a 47 per cent tax rate, the tax on her gain is $228,252 (compared to $188,000 with a 50 per cent discount). The government said the $3.6bn raised over the next four years will be used to help fund tax cuts for every Australian worker. EVs get more expensive The Australian government is also making it less lucrative to get an electric vehicle under a change to the Fringe Benefit Taxes. First introduced in 2022, the government would scrap the Fringe Benefit Taxes applied to vehicles bought through salary sacrifice arrangement. Due to this policy EVs became about $150 a week cheaper compared with traditional internal combustion engines, helping more than 100,000 EVs to be sold in Australia. The new taxes will be phased in over two periods. Firstly, the government will look to claw back $1.9bn over the next five years the government will change this to a permanent 25 per cent benefit on electric cars costing $75,000 or more. But by 2029 this will be extended to all electric vehicles sold in Australia. These new arrangements continue targeted support for the shift to electric cars, while ensuring the sustainability of the system in the long term and reflect the recommendations of the statutory review of the electric car discount policy.