Jim Chalmers shrugs off boomer backlash over property tax reforms in upcoming Budget as investors targeted

Treasurer Jim Chalmers insists he is willing to make boomer Australians unhappy in the upcoming Budget so the tax system is fairer to younger people unable to buy their first home.

Another expected interest rate increase in May is set to dilute the borrowing capacity of prospective home buyers, amid a fresh warning that inflation is likely to hit 5 per cent soon for the first time in three years as the Iran war keeps pushing up fuel prices.

Those who already have a mortgage face even more repayment pain in coming weeks on top of the Reserve Bank’s February and March hikes.

Younger voters battling either mortgage or rent stress are already unhappy as it is.

But Labor could soon be making older, boomer voters unhappy too as it dilutes tax concessions for property investors.

Dr Chalmers hinted his fifth Budget, due on May 12, would be polarising as the Federal government sought to address intergenerational unfairness.

“We know that the idea that you can make every single person happy with every single decision is an unrealistic and naive objective,” he told an Australian Business Economists lunch in Melbourne on Thursday.

“We’re prepared to take difficult but responsible decisions to make the tax arrangements more sustainable and fairer, in an effort to try and rebalance things a little bit so that people aren’t getting such a raw deal in intergenerational terms.”

Dr Chalmers made the tax breaks declaration two days after a Greens-led Senate committee recommended scrapping the 50 per cent capital gains tax discount for anyone who has owned an investment property for at least a year.

Greens senator Nick McKim, who chaired the inquiry into the CGT discount, has called for the concession to be scrapped entirely without any grandfathering for existing investors while the committee’s Labor deputy chair, Richard Dowling, acknowledged existing tax arrangements perpetuated intergenerational inequity.

In a dissenting report, Liberal senators and frontbenchers Andrew Bragg and Dave Sharma said abolishing the capital gain tax concessions would fail to boost the supply of housing or increase home ownership.

Having lost the 2016 and 2019 on a platform of halving the CGT discount to 25 per cent, Labor faces Coalition accusations of a broken election promise, with Prime Minister Anthony Albanese dumping plans in Opposition to tamper with property investor tax breaks.

The next Budget is also being delivered a week after the Reserve Bank of Australia’s May 5 meeting, which is universally expected to hike the cash rate by another 25 basis points to 4.35 per cent.

For an average $736,000 new mortgage, that will mean another $120 added to monthly repayments on top of Tuesday’s quarter of a percentage point hike.

Dr Chalmers warned inflation could approach 5 per cent for the first time since 2023, when the Reserve Bank was last embarking on back-to-back rate hikes.

“It means the prospect of inflation peaking in the high fours or even higher this year is very real,” he said.

Even before the US and Israel launched airstrikes on Iran, Australia’s consumer price index was already at 3.8 per cent, or a level well above the RBA’s 2-3 per cent target.

With the Brent crude oil price back above $US110 a barrel again on Thursday, Treasury is recalibrating its inflation forecasts ahead of the Budget.

As recently as December, its Mid-Year Economic And Fiscal Outlook was predicting a 3.75 per cent inflation rate for 2025-26.

But the latest tensions in the Middle East could see inflation peak at 4.5 per cent in coming months, rising to 5 per cent by next year.

“Headline inflation would peak three-quarters of a percentage point higher in the short-term scenario and one-and-a-quarter percentage point higher in the prolonged one,” Dr Chalmers said.

Weak productivity also exacerbates inflation if businesses pass on the extra costs to consumers, with the blockade of the Strait of Hormuz making a bad situation worse.

“It’s adding to inflation when it is already too high, intensifying uncertainty when it is already elevated, and straining our productive capacity when it is already close to its limit,” Dr Chalmers said.

More expensive fuel and grocery bills are likely to make voters of all ages very unhappy.

But spending more money to address cost-of-living pressures also means higher debt interest payments with welfare spending already a big cost on the Budget.

“When you look at the fastest-growing half a dozen or so pressures on the Budget, there’s a pretty familiar and pretty consistent theme,” he said.

“One of them is interest on debt, one of them is defence, but the rest of them in one way or another relate to the care economy and part of that is a function of having an ageing population, part of that is pressures in areas like the NDIS.”

The Treasurer said any kind of tax relief had to be paid for.

“I think it’s good to spur the necessary conversation about tax reform which was fiscally sustainable,” he said.