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Crises Management and the art of plate spinning
Budgets are shaped by their circumstances, and this one is no exception. Originally, Budget 2026 was intended to be a capital-R Reform Budget in response to last August’s Economic Reform and Productivity Roundtable. But war in the Middle East, the consequent energy crisis, and a deteriorating global geopolitical backdrop demanded attention on budget night while above-target inflation and a rate-hiking central bank added new constraints. And growing voter discontent extending past the (still salient) focus on cost-of-living to housing affordability, intergenerational equity and beyond, required a response.
Budget 2026, then, is a case of crises (not crisis) management. To its credit, the government has attempted to tackle these various crises, although the efficacy of some responses is uncertain, and projections remain hostage to the crisis in the Persian Gulf.
A couple of years ago, I suggested the Treasurer’s job on budget night was a macro-political juggling act. This time, the juggling analogy is less apt. Instead, think of a plate spinning act, where each plate represents a crisis requiring ongoing treatment to avoid falling. Juggling involves maintaining the flow. Plate spinning requires avoiding the crash.
Budget 2026 sees the Treasurer working hard at keeping his various plates in motion, with his speech on budget night setting out ‘an economic strategy with five main parts’ that broadly map onto the challenges listed above:
- Getting through the global oil shock and building resilience
- Taking the pressure off people where we can
- Making the economy more productive to lift living standards over time
- Reforming the tax system for workers, businesses and future generations
- Making the budget stronger, more sustainable, and helping take the pressure off inflation by saving more than we spend
To deal with these challenges, Budget 2026 is framed around three policy packages.
A productivity and investment package
This promises to: cut regulatory costs by $10.2 billion every year; reduce compliance costs in the financial sector; advance the government’s plan to build a Single National Market by driving harder on National Competition Policy reforms; and implement measures to make government easier to deal with, including a ‘tell us once’ approach.
A tax reform package
The tax package limits negative gearing for new residential property builds from July 2027; replaces the 50% capital gains tax discount with cost base indexation and a 30% minimum rate (applying from July 2027, with new builds able to retain the old discount); and introduces a minimum 30% tax rate on discretionary trusts from July 2028.
Budget 2026 also reintroduces two-year loss carry-back for all companies with turnover up to $1 billion from July this year; introduces loss refundability for start-ups; expands tax incentives for venture capital; and makes the $20,000 instant asset write-off for small businesses permanent.
Plus, there is additional cost of living relief, in the form of a new $250 Working Australians Tax Offset (WATO), scheduled to take effect from the second half of next year.
A savings package
The deficit on the underlying cash balance persists through the forward estimates to 2029-30 but is now smaller than projected in the December 2025 Mid-Year Economic and Fiscal Outlook (MYEFO), for a cumulative fiscal improvement of $44.9 billion. Gross debt as a share of the economy now peaks earlier and peaks lower than in the MYEFO.
To achieve this, Budget 2026 delivers an estimated $63.8 billion in gross savings and reprioritisations, while on net policy decisions improve the bottom line by $26.1 billion over the five years to 2029-30. At the heart of the savings are changes to the NDIS, which are estimated to save $37.8 billion over the forward estimates while real payment growth overall is targeted at 1.1% over the four years to 2029-30.
Summing up
Budget 2026 is an ambitious effort to deliver progress on multiple fronts given the constraints facing the Treasurer. The efforts to boost productivity and improve regulatory settings are welcome. Progress on budget repair is meaningful, but reliant on windfalls from ‘parameter variations,’ and assumptions about NDIS savings and limited payment growth rates. The changes to the tax system advance an agenda that has been outstanding for many years, albeit at the potential cost of greater complexity and some attrition to public trust given the breaking of election promises. They also fall well short of any ideal ‘tax reform wish list’, limiting their overall productivity impact. Meanwhile, the outlook remains hostage to a deeply fragile global economic, financial and geopolitical environment.
The plates keep spinning, although several are still distinctly wobbly.
The Budget by the numbers - Deficits
- Budget 2026 projects an underlying cash deficit of $28.3 billion (1% of GDP) in 2025-26 to be followed by a deficit of $31.5 billion (again 1% of GDP) in 2026-27. Across the forward estimates, the deficit is then projected to remain at the same share of output until the fifth and final year, when in 2029-30 the budget gap falls to just 0.7% of GDP. That near-term fiscal outcome is better than predicted in the December 2025 Mid-Year Economic and Fiscal Outlook (MYEFO), which had anticipated a deficit of $36.8 billion (1.3% of GDP) this fiscal year and another shortfall of $34.3 billion (1.1% of GDP) in 2026-27. Relative to MYEFO, the underlying cash balance is expected to have improved by $8.5 billion in 2025-26 and then to improve again by $2.8 billion in 2026-27. Indeed, the deficit on the underlying cash balance is expected to be below the MYEFO projection for every year of the forward estimates, delivering a cumulative budget improvement of $44.9 billion.
- Breaking that improvement down into the impact of parameter and other variations vs the impact of policy decisions shows that the former is doing the work until 2028-29. Total parameter and other variations boost the underlying cash balance relative to MYEFO by $13.8 billion in 2025-26, by $9.3 billion in 2026-27 and $7.5 billion in 2027-28, while in the same years policy decisions worsen the underlying cash balance by $5.3 billion, $6.5 billion and $2.3 billion, respectively. That story changes from 2028-29, however, when policy decisions start to boost the bottom line, with 2029-30 delivering a large positive contribution. Across the forward estimates in total, of that near $45 billion cumulative improvement, about $8 billion reflects policy decisions while approaching $37 billion is the product of parameter and other variations.
- Digging into the policy decisions, key tax policy measures that influence the bottom line for Budget 2026 include the new Working Australians Tax Offset from 2027-28 which lowers receipts by $6.4 billion over the forward estimates; the changes to negative gearing and capital gains tax from 1 July 2027, which increases receipts by $3.6 billion; and the new minimum 30% tax on discretionary trusts which increases receipts by $4.5 billion over the same five-year period.
- On the payments side of the fiscal accounts, new policy decisions since MYEFO have increased total government payments by $1.7 billion in 2025-26 and by $8.7 billion in 2026-27 but only by a cumulative $0.5 billion over the forward estimates to 2029-30. That reflects the impact of offsetting measures that have lowered payments. That is dominated by measures to wind back NDIS spending which are expected to reduce payments by $37.8 billion over the four years to 2029-30 (partially offset by $1.7 billion of new support).
- At the same time, parameter and other variations have increased total receipts relative to the projections in MYEFO by $13.6 billion in 2025-26, $18.8 billion in 2026-27 and $41.1 billion over the five years to 2029-30. Tax receipts have been revised up by $18 billion in 2026-27 and by a cumulative $40.2 billion over the forward estimates, lifted by higher superannuation fund, personal income and company taxes, with the gains concentrated in the near term. That is in part because, while the war in the Middle East is expected to boost tax receipts in the near term due mainly to higher energy export prices, over time the budget forecasts anticipate lower commodity prices and lower activity, and tax revenues are then expected to fall back.
- Turning to the medium term, Australia’s fiscal accounts are now expected to return to balance in 2034-35, before moving into a surplus reaching 0.8% of GDP by 2036-37.
- In recent years, it has become increasingly important to look beyond the underlying cash balance measure of the deficit to add in the impact of ‘off balance sheet’ spending – that is, of policy decisions funded not by direct government payments but rather by alternative financing measures. On this basis, headline cash balance is forecast to be in deficit by $47.9 billion (1.6% of GDP) in 2025-26 and $64.1 billion (2.1% of GDP) in 2026-27. That compares to MYEFO projections for a headline deficit of $58.6 billion (2% of GDP) in 2025-26 and a shortfall of $62.7 billion (2.1% of GDP) in 2026-27. Over the five years to 2029-30, these off balance sheet activities add a cumulative $114 billion to the government’s borrowing needs. That is $4.5 billion more than at the time of the MYEFO.
The Budget by numbers – Debts
- Government gross debt is now projected to rise from $982 billion (33.1% of GDP) in 2025-26 to $1,051 billion (34% of GDP) in 2026-27 before increasing to $1,249 billion (35.6% of GDP) by the end of the forward estimates in 2029-30. As a share of GDP, the gross debt burden is now forecast to peak at 35.8% of GDP by June 2029 and fall to 27.2% by 30 June 2037. Compared to the MYEFO’s debt projections, gross debt as a share of GDP is lower in every year of the forward estimates and medium term. It also peaks two years earlier and 1.2 percentage points lower than in the MYEFO
- The burden of debt service is now expected to rise from 0.6% of GDP in this fiscal year to 0.9% of GDP by 2029-30 before rising to 1% of GDP by 2036-37. Again, that is a shallower trajectory than the MYEFO projections, which saw net interest payments rising to 0.9% of GDP by 2028-29 and then to 1.2% by 2035-36.
The Budget by numbers – Underpinning forecasts
- The baseline Treasury forecasts that underpin Budget 2026 assume that global growth will run at 3% in 2026 and then pick up slightly to 3.25% in 2027 and 2028. Major trading partner growth is forecast at 3.25% across the forecast period. These projections assume that global oil prices start to ease from the middle of this year, with the Tapis oil price averaging around US$100/b in the June quarter of this year before falling to US$80/b by the June quarter 2027.
- The baseline projections for the domestic economy see Australian economic growth in 2025-26 unchanged from the December 2025 MYEFO projection at 2.25%. But growth is then expected to slow to 1.75% in 2026-27 before recovering to 2.25% in 2027-28, instead of the MYEFO’s stable growth trajectory. The projections for unemployment are little changed, with the unemployment rate at 4.5% across 2026-27 and 2027-28. Consumer price inflation is expected to spike to 5% in the June quarter of this year before falling back to 2.5% and into the middle of the RBA’s target band by the June quarter 2027 and then stabilising there.
Productivity Package
A productivity package aimed at boosting Australia’s lagging productivity growth and reducing regulatory burden was a centerpiece of the Government’s budget. Recent research by the AICD and Mandala Partners showed Australian organisations now spend $160 billion a year to comply with federal regulation, more than double the cost a decade ago. Tonight’s measures announced by the Government will reduce regulatory burden by $10.2 billion each year once implemented and are a welcome first step in addressing this critical challenge.
Key measures included:
- Raising monetary thresholds for large proprietary companies from $50 million to $100 million of consolidated revenue and $25 million to $50 million of consolidated gross assets. The AICD had been calling for an increase in the reporting thresholds since our 2025 election platform and in our economic research with Mandala partners. The change will mean approximately 1,500 companies will no longer need to lodge an annual audited financial report, directors’ report or sustainability report (including mandatory climate reporting). AICD analysis shows these changes alone will save the companies approximately $200m in the first year of operation.
- Making the $20,000 instant asset write-off permanent to support small businesses to invest and keep compliance costs low.
- Australia’s business registers will receive a further $136.1 million to uplift – making it easier to start and manage businesses through stronger digital authentication, linking Director IDs to ASIC’s Companies Register, rebuilding ABN and Super Fund Lookup services, and improved synchronisation between ASIC and the ACNC registers.
- Reducing red tape measures include reducing financial sector regulatory burden by $780 million a year, increasing the monetary thresholds for large propriety companies, improving the efficiency of climate-related financial disclosures, further modernising business communications, and increasing the cap on banks’ covered bond issuance. Also reducing duplicative, inconsistent or opaque data requests through 13 actions by financial regulators, while delivering more than 50 commitments in the Better Regulation Roadmap, reducing annual costs by $181 million per year.
- Removing barriers to trade by abolishing another 497 nuisance tariffs from 1 July 2026, bringing the total number abolished to around 1,000, saving businesses $157 million in compliance costs each year.
- Making it easier to engage with government by investing $654.3 million into Digital ID to enable individuals to reduce the sharing and storage of personal data across businesses, government and individuals, and to securely access 255 government services, including myGov, ATO, Centrelink and the NDIS.
- Accelerating approvals by providing funding for environmental approval bilateral agreements with states and territories, cutting duplication to progress assessments faster and further streamlining and strengthening the foreign investment framework to enable faster approvals for low-risk investments and provide better tools to manage high-risk investments.
- Simplifying building regulations including making all mandatory Australian standards free, including across construction, occupational health and safety, and product safety, saving small electrical, plumbing and construction firms up to $1,600 in fees each year.
Governance Analysis for directors and boards
- Outside of the productivity package there were a range of measures directors and boards might be interested in. These include:
- $18.5 million over four years from 2026–27 to uplift the ASIC and APRA capability to improve the security of systems of national significance.
- $67.7 million over four years from 2026–27 to increase the ACCC enforcement capacity to deter companies from engaging in anti‑competitive and anti‑consumer conduct.
- $12.7 million in 2026–27 to extend the operation of the National Anti‑Scam Centre to continue protecting consumers and businesses from scam activity for a further year.
- $17.8 million over four years from 2026–27 to strengthen governance requirements, supervision and enforcement in relation to managed investment schemes.
- $105.9 million over four years from 2026–27 for the Department of Climate Change, Energy, the Environment and Water (DCCEEW) and the National Environmental Protection Agency (NEPA) to modernise environmental information, data and digital systems (including through the use of artificial intelligence) to improve user experience and enable simpler, faster environmental approvals.
- $36.9 million over two years from 2026–27 for the Department of Climate Change, Energy, the Environment and Water (DCCEEW) and the Clean Energy Regulator to continue administering the Nature Repair Market, and develop additional methods to increase investment in nature and facilitate delivery of environmental offsets.
- $4.8 million over four years from 2026–27 to finalise funding arrangements for External Reporting Australia, which will replace the Australian Accounting Standards Board, the Auditing and Assurance Standards Board and the Financial Reporting Council, including additional resourcing to support climate sustainability reporting.
- The Government will also introduce legislation to streamline the ACCC’s authorisation and class exemption powers to allow industry to coordinate under exceptional circumstances where it provides broader benefits.
- The Government will remove the ministerial declaration requirement from the community charity DGR process, reducing red tape for eligible community charities by removing a step in the endorsement process.
- $120.3 million in 2026–27 in additional funding for the Aged Care Quality and Safety Commission to continue delivering its regulatory functions under the Aged Care Act 2024.
- $1.0 million over two years from 2026–27 to progress the implementation of a national worker registration scheme for personal care workers employed in aged care.
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