Australia Tackles Property Tax Breaks, Disappoints on Deficit

Jim Chalmers, Australia's treasurer, during a Bloomberg interview at Parliament House in Canberra, Australia, on Sunday, May 10, 2026. Australia's upcoming budget will take aim at soaring home prices and seek to make it easier for people to gain a foothold in the housing market, said Chalmers. Photographer: Hilary Wardhaugh/Bloomberg Photo by Hilary Wardhaugh /Bloomberg

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(Bloomberg) — Australia will overhaul tax settings that have long favored property investors and assist households and firms grappling with soaring fuel costs in a budget that outlined deficits across the forecast horizon.

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Treasurer Jim Chalmers’ first budget since the center-left government won a landslide election victory 12 months ago showed this year’s deficit at A$28.3 billion, or 1% of gross domestic product. It’s then expected to widen to A$31.5 billion in fiscal 2027 and remain in the low 30s to June 2029.

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That was above economists’ median estimate of a A$26.7 billion shortfall in the current year, and A$25 billion in 2026-27. Still, compared with the average 2.5% budget deficit in major developed economies, Australia’s finances are in better shape.

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The Labor government is trying to shield the economy from an Iran-war driven energy shock while turning around moribund productivity and addressing intergenerational inequality that’s frustrated young Australians. The economy is reasonably placed at present with low unemployment and key exports like iron ore, coal and liquefied natural gas boosted by the conflict in the Middle East, which is swelling government revenue.

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Yet Australia was grappling with resurgent inflation even before the US-Israeli attack on Iran at the end of February. That pushed the Reserve Bank to raise interest rates three times this year, even before the full impact of soaring fuel prices was felt.

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The latest rate hike came with a warning that headline inflation will peak near 5% this quarter, well above the RBA’s 2–3% target. As a result, economists were hopeful Chalmers would use the budget to take as tougher fiscal stance to cool price pressures. He maintains the document addresses pressing needs.

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“It’s a responsible budget, and a reforming budget, which builds resilience and bolsters our economy,” Chalmers said in a speech to lawmakers on Tuesday evening. “There is more cost-of-living relief, more Medicare and more aged care, and more housing.” 

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The treasurer added in his address to parliament that the macroeconomic outlook is “much more uncertain” with oil prices expected to remain elevated for some time yet and a slowdown in global growth.

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Chalmers reiterated that the government is banking some of the windfall from commodity prices to help restrain inflation pressures, calling his document “the most important and ambitious” budget in decades.

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Yet outside well-telegraphed cuts to Labor’s flagship National Disability Welfare Scheme, there were limited savings. Australia’s public finances are under pressure from rising costs tied to an aging population and soaring defense spending in an increasingly unstable world. These limit the government’s political scope for sweeping economic reforms despite a significant parliamentary majority.