Delivered against a backdrop of the Middle East conflict, a global oil shock and rising inflation, the budget attempts to balance cost of living support with major structural reform across tax, housing, health and aged care.
As ethical investors, we always look at budget decisions through the lens of their social, environmental and governance impact. This year’s budget presents a mixed picture.
Positive developments
The restriction of negative gearing to new builds is a significant step toward housing equity. By redirecting investor activity toward new housing supply rather than existing stock, the policy aims to make home ownership more accessible for younger Australians while encouraging construction of the housing we actually need. From an ethical standpoint, addressing intergenerational inequality in the housing market is a meaningful social outcome.
The $3.7 billion investment in aged care, including fully funded personal care services and additional dementia support, reflects a genuine commitment to the dignity and wellbeing of older Australians. The removal of co-contributions for personal care through Support at Home is particularly welcome. Alongside the broader health spending, including record hospital funding and permanent Medicare Urgent Care Clinics, these measures strengthen the social safety net.
The boost to the LISTO for lower-income workers, and the $2 billion Thriving Kids program for children with disability, are positive social equity measures. The continued investment in First Nations communities ($1.2 billion), Closing the Gap commitments, and programs to end violence against women and children also align strongly with social responsibility values.
The CGT and trust reforms, while complex, are fundamentally about tax fairness. Ensuring that investment income is taxed more in line with employment income addresses a long-standing equity issue in the Australian tax system.
Areas of concern
From an environmental perspective, this budget has some notable gaps. The $10 billion fuel security package, while understandable given the immediate crisis, represents a major investment in fossil fuel infrastructure, including new storage, refining feasibility studies and expanded reserves. While energy security is important, this level of investment in fossil fuel supply chains raises questions about whether it locks in long-term dependence on oil and gas at a time when we should be accelerating the transition to renewables.
The reservation of 20% of gas exports for domestic use may help keep energy costs down for households and businesses in the short term, but it does not address the underlying need to reduce our reliance on gas as an energy source. Sustainability-focused investors would prefer to see this paired with greater investment in renewable energy and electrification.
The wind-back of the electric vehicle FBT exemption is disappointing from a sustainability perspective. While the exemption will remain in full for vehicles under $75,000 until April 2027, and a 25% FBT discount will apply to all eligible EVs from April 2029, the phase-out reduces one of the most effective incentives for Australians to switch away from petrol and diesel vehicles. The government says this reflects the maturing EV market, but it comes at a time when transport emissions remain a major challenge and when rising fuel costs should be reinforcing the case for electrification, not weakening the incentives.
The budget is also relatively quiet on new renewable energy investment and climate-specific measures. While the Future Made in Australia agenda continues, there is limited new funding announced for clean energy, nature protection or emissions reduction beyond existing commitments. The Australian Conservation Foundation noted before the budget that spending on climate and nature across the forward estimates accounted for less than one cent for every Commonwealth dollar, while a single fossil fuel subsidy (the fuel tax credit scheme) cost 1.4 cents in every dollar. This imbalance does not appear to have been meaningfully addressed.
Key Changes
Below is a summary of the key changes and what they might mean for you.
Cost of Living
A new permanent tax offset for workers, called the Working Australians Tax Offset (WATO), will provide up to $250 per year from the 2027-28 income year. This effectively raises the tax-free threshold to almost $20,000 for workers and is expected to benefit over 13 million Australians. While it is a welcome addition, it will not appear in tax returns until 2028.
From the 2026-27 income year, a new $1,000 instant tax deduction for work-related expenses will simplify tax time for around 6.2 million workers. If your work-related deductions are under $1,000, you will no longer need to keep receipts or itemise claims. If your deductions exceed $1,000, you can still claim them in the usual way.
The already-legislated Stage 3+ tax cuts continue, with the second marginal rate dropping from 16% to 15% on 1 July 2026 for income between $18,201 and $45,000. This delivers an automatic saving of up to $268 per year for anyone earning above $45,000.
The PBS co-payment for general Medicare card holders has already dropped to $25 per script from 1 January 2026, the lowest in 20 years. Concession card holders continue to pay no more than $7.70 until at least 2030. New PBS listings include treatments for cancer and cerebral palsy.
Tax Reform
Capital Gains Tax
From 1 July 2027, the longstanding 50% capital gains tax (CGT) discount for individuals, trusts and partnerships will be replaced with a new model based on cost base indexation and a minimum 30% tax rate on real gains. In practical terms, this means the purchase price of an asset will be adjusted for inflation, and only the real gain above that adjusted cost will be taxed. However, you will always pay at least 30% tax on that real gain, regardless of your marginal tax rate. Pensioners and people on income support are exempt from the 30% minimum rate.
Importantly, gains that arose before 1 July 2027 will still qualify for the existing 50% discount. The main residence exemption and superannuation tax arrangements are not affected. Investors who buy newly built homes will be able to choose either the 50% CGT discount or the new settings when they sell.
Negative Gearing
From budget night (12 May 2026), negative gearing for residential investment property will be limited to new builds only. If you already own an investment property purchased before 7:30pm AEST on 12 May 2026, your existing negative gearing arrangements are unaffected. Going forward, only newly constructed properties will be eligible for negative gearing deductions. Investments that support government housing and affordable housing programs will also be exempt.
The government expects these changes, combined with other housing measures, will help around 75,000 additional first home buyers enter the market over the next decade. Treasury modelling suggests house prices will continue to grow but around 2% slower on a median basis.
Discretionary Trusts
From 1 July 2028, discretionary trusts will face a minimum tax rate of 30%, paid by the trustee. This is designed to prevent income splitting strategies that allow distributions to be taxed at lower marginal rates. Fixed trusts, special disability trusts and charitable trusts are not affected.
Superannuation
The Superannuation Guarantee (SG) rate increases to 12% on 1 July 2026, completing the long-planned phase-in. For someone earning $100,000, this means $12,000 per year flowing into super, up from $11,500 in 2025-26.
Payday super also comes into effect on 1 July 2026. Employers must now pay super at the same time as wages, rather than quarterly. This means your super is invested sooner, and underpayments are easier to detect.
Division 296, the additional 15% tax on super earnings for balances above $3 million, officially commences from 1 July 2026. This brings the effective tax rate on earnings above the $3 million threshold to 30%. The first assessments will be issued in the 2027-28 financial year. A second tier of 40% applies for balances above $10 million. Importantly, only realised earnings (not unrealised gains) will be taxed, and both thresholds will be indexed to CPI.
From 1 July 2027, the Low Income Superannuation Tax Offset (LISTO) is being boosted, with an increase to the income threshold and payment cap, helping lower-income workers build stronger retirement savings.
Health and Aged Care
The budget delivers a record $25 billion in additional funding for public hospitals, bringing total Commonwealth hospital funding to $220 billion over five years under the renewed National Health Reform Agreement.
Medicare Urgent Care Clinics will become a permanent feature of the health system, with $1.8 billion in funding. By July 2026, four in five Australians will live within a 20-minute drive of a clinic. The government is also investing $2.1 billion to improve access to primary and specialist healthcare, and continues to push toward a goal of nine out of ten GP services being bulk billed by 2030.
For aged care, $3.7 billion has been committed to deliver more beds, more home care packages and better quality care. This includes funding for up to 5,000 new residential aged care beds each year, 20 additional Specialist Dementia Care units, and an expansion of the Hospital to Aged Care Dementia Support program. Support at Home will receive $1 billion to fully fund personal care services such as showering and continence management, removing the need for co-contributions.
The NDIS is being reformed to return it to its original intent, with $37.8 billion in savings expected over the forward estimates. This includes tighter eligibility criteria, stronger fraud prevention and a new $2 billion Thriving Kids program.
Fuel Security
In response to the global oil shock, the government is investing more than $10 billion in an Australian Fuel Security and Resilience package. This includes $7.5 billion for a Fuel and Fertiliser Security Facility, $3.2 billion for a government-owned fuel reserve of around one billion litres, and a 10-day increase to the minimum stockholding obligation for all fuel types.
The aim is to ensure at least 50 days of diesel and aviation fuel supply. The government will also reserve 20% of gas exports for domestic use.
Housing
Beyond the negative gearing and CGT changes, the budget includes funding for local housing infrastructure to support up to 65,000 new homes, along with reforms the government says will support an additional 75,000 homeowners. First home buyers will be supported with 5% deposit schemes and additional tax reform.
Small Business
The $20,000 instant asset write-off for small businesses (turnover under $10 million) will be made permanent from 1 July 2026. Interest-free loans will also be available to help manufacturing and logistics businesses manage rising fuel costs. The government has announced a broader productivity package aimed at reducing red tape, with regulatory burden reductions estimated at $10.2 billion per year.
Defence
A record additional $53 billion has been committed to defence, alongside $8.6 billion for nationally significant road and rail projects. These investments reflect the government’s focus on building resilience and security in an increasingly uncertain global environment.
