By James Glynn
SYDNEY--The Australian government's latest budget contains tentative steps toward long-awaited economic reform, while providing cost-of-living relief and boosting fuel security as the Iran war threatens international supply.
Treasurer Jim Chalmers told parliament that the 2026-2027 budget is the most ambitious in a generation, announcing changes to the tax treatment of investment properties, which he said will address "intergenerational unfairness" by helping young Australians buy homes.
"The budget is our most responsible and it will be our most ambitious. It focuses on resilience and reform," Chalmers said.
The winding back of so-called negative gearing, which directs generous financial incentives toward those buying investment homes, is expected to help cool house price growth over time.
Capital cities like Sydney are now among the most expensive in the world, however, proponents of the tax arrangement argue the changes from mid-2027 will reduce housing supply and further limit access to the market for new homebuyers.
The tax changes are significant as around 2.3 million Australians own at least one investment property.
"We see these two policy changes as likely to place downwards pressure on housing prices, as they reduce new investor demand, and put some upward pressure on rents as existing landlords seek to raise rents, to make up for a higher tax burden," said Paul Bloxham, a chief economist at HSBC.
The budget also includes more than 10 billion Australian dollars in new spending--equivalent to about US$7.25 billion--to strengthen the country's fuel security as the Iran war highlights its isolation and vulnerability to energy shocks.
Around half of the new spending will go to the establishment of a government-owned fuel security reserve that will hold 1 billion liters of emergency diesel and aviation fuel, increasing the country's minimum stockholding obligation by a further 10 days.
Australia will also boost defense spending by 53 billion Australian dollars over the next decade, as the government warned about intensifying international risks.
The budget also delivered another round of income-tax cuts and a one-off tax offset of 250 Australian dollars to boost household budgets, something that may concern the central bank as it battles a spike in inflation over coming months.
The government will also take an axe to spending on the National Disability Insurance Scheme to reduce surging cost. Cuts to the NDIS are expected to save 37.8 billion Australian dollars over the next four years, significantly easing strain on the budget's bottom line.
The economy is expected to remain relatively robust, with the government forecasting a rise in unemployment to just 4.5% by the middle of the year.
Economic growth is expected to slow to around 1.75% in the year ahead, which will ease some of the concerns the Reserve Bank of Australia has about capacity constraints in the economy and the threat of lingering inflation.
The budget's bottom line is expected to remain in deficit at 1.0% of gross domestic product in 2026-2027, and remain there over coming years.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
05-12-26 0609ET
