The federal budget is the key report from the government that outlines how they will collect money from taxpayers and where that money will be spent. A key figure in the budget is “the bottom line”, which refers to whether the money the government collects matches the amount it will be spending. 

The budget estimates an underlying cash deficit of $31.5 billion in 2026–27, an improvement of $2.8 billion on the Treasuries December Mid-Year Economic and Fiscal Outlook forecast. The net debt of government is estimated to reach 21.9 per cent of GDP in 2029–30. This is relatively healthy compared to larger countries such as the US and China at 120.8 and 88.3, respectively, and comparable to Scandinavian countries like Sweden and Denmark. 

According to the Centre of Economic Development Australia, stronger fiscal discipline in maintaining lower debt sustains the government’s financial credibility and preserves its “capacity to respond to future shocks without placing a larger burden on future generations.” This is especially crucial as instability permeates the global economy. 

A key driver in reducing the budget deficit is the cutting of $37.8 billion over the next four years to the National Disability Insurance Scheme (NDIS). The key changes will be made in the eligibility criteria for the program: a shift to larger providers and tightening of eligibility for intellectual disability, autism and psychosocial disability participants, who account for 66.5 per cent of Core Community Participation spending. These savings will not be without consequences as more than 160,000 people are set to be kicked off NDIS as government overhauls eligibility test.  

As outlined by the e61 institute: “reforms that change who can provide services, without fixing the underlying market design, may risk consolidating provision in ways that make cost control harder, not easier, over the longer term.” However, even with these cuts, the NDIS will remain as one of the fast-growing programs in terms of costs as our population ages. 

Impact of tax changes on young people 

Since the release of the budget, the focus of conversation has been on the ambitious changes to the tax system. The three key changes to the system mark the most significant intergenerational rebalancing of the tax system in decades and would be an important step to bridging the intergenerational wealth gap.  

From 1 July 2027, the 50 per cent CGT discount will be replaced with inflation indexation and a 30 per cent minimum tax on capital gains, ending a concession that has built up disproportionately to older asset-holders since 1999.  

Negative gearing for strictly new builds will be restricted as investors will no longer be able to deduct rental loses against their personal income.  This new policy closes off a leverage advantage that has historically allowed investors to outbid first home buyers.  

From 1 July 2028, a 30 per cent minimum tax on discretionary trusts which will further tighten the income-splitting arrangements predominantly used by wealthier households to compress effective tax rates on investment income. 

These changes in the tax system alongside income tax cuts will shift the tax burden away from working Australian who rely on wages as their main source of income towards those who own assets to generate their wealth. 

Regarding the changes to the tax system, the e61 institute says: “A fair and efficient tax system should ask people in similar economic circumstances to contribute in similar ways, while also reducing tax distortions to work, saving and investment.” 

A key focus on these tax changes is to improve housing affordability, where the treasurer estimates that the package will support around 75,000 additional first home buyers over the next decade by tilting investor incentives toward new supply and dampening speculative demand for established homes. However, it is crucial to note that the most important piece of the housing puzzle is supply which will need to be driven by state and local level planning reforms. This is supported in the budget with a $2bn investment in local infrastructure, which would reduce water, transport and energy impediments for new builds.  

On the other hand, the fact that CGT changes apply to all assets, not just property, creates a tension within the package. Many younger Australians, priced out of housing, have turned to exchange-traded funds as their main way to build wealth outside super.  Since indexation only shields against inflation while real returns are taxed in full, swapping the 50 per cent discount for cost base indexation and a 30 per cent minimum tax will likely lead to a higher tax bill in the long run. The 30 per cent floor also falls hardest on those in lower tax brackets. The package thus opens one channel of wealth accumulation for younger Australians while narrowing another they have come to rely on. 

Productivity measures and real growth 

True growth in an economy ultimately comes from productivity—the ability to produce more with the same inputs of labour and capital. Without it, rising GDP simply reflects a bigger population or longer working hours rather than a genuine improvement in living standards, and this is important for future employment and wage growth for young people. With Australian productivity growth having stalled across much of the past decade, the budget placed a strong emphasis in addressing this.  

The package is framed around making it easier to build, invest and innovate. On the business side, it introduces loss refundability for start-ups, a permanent $20,000 instant asset write-off, expanded venture capital tax incentives and reforms to the R&D Tax Incentive.  

Beyond tax, the government is aiming to facilitate faster environmental, resources and foreign investment approvals by abolishing 497 nuisance tariffs. In addition to improving trade, pursuing reforms to the energy market and investing $1.5 billion in research institutions including the Commonwealth Scientific and Industrial Research Organisation (CSIRO), the National Measurement Institute and the Square Kilometre Array. The government estimates these measures will reduce regulatory burden by $10.2 billion a year and lift long-run GDP by around $13 billion a year.  

Critics have argued that the package leans too heavily on broad-based tax changes and regulatory reform rather than targeted investment in specific industry R&D programs—an approach that relies on firms already having the capability, ambition and capital to invest.  

Director of Monash Robotics Professor Dana Kulić argued that there is not enough investment in robotics to boost productivity:  

"Despite Australia's National Robotics Strategy recognising robotics and AI as critical to economic growth, they are still not being treated as core economic infrastructure." With most Australian firms being small or medium-sized businesses that "typically don't have the capital or in-house expertise to deploy and manage complex robotic systems," critics see a strong case for more direct public investment in helping these firms adopt frontier technologies, which is crucial for productivity improvements. 

For young Australians, the 2026–27 Budget marks a meaningful but partial rebalancing in their favour. Whether it proves to be the generational shift its framing suggests will ultimately depend on what comes next: stronger state and local action on housing supply, deeper reform of the tax system and a more deliberate strategy to develop the industries that will employ young Australians into the future. The reforms set a direction, but the harder work of building an economy that genuinely serves the next generation lies ahead. 

Glossary 

Underlying cash deficit — The gap between what the government collects (mostly through tax) and what it spends in a year, leaving aside one-off items. A deficit means it's spending more than it brings in and has to borrow to cover the difference. 

Net debt (as a share of GDP) — The government's total debt minus its financial assets, measured against the size of the economy. Expressing debt this way makes it possible to compare across countries and across time, since a $1 trillion debt means something very different for Australia than it does for the US. 

NDIS (National Disability Insurance Scheme) — A federal program that funds supports and services for Australians with permanent and significant disability. 

Capital Gains Tax (CGT) discount — A rule that has, since 1999, taxed only half the profit on an asset (shares, property, etc.) held for more than a year, rather than the full amount. The budget proposes replacing it. 

Inflation indexation — Adjusting the original purchase price of an asset upwards in line with inflation before working out the profit. The idea is that you're only taxed on the "real" gain, not the part that just kept up with rising prices. 

Negative gearing — When the costs of owning an investment property (mortgage interest, maintenance) are greater than the rent it earns, and the investor deducts that loss against their other income to lower their tax bill. 

Discretionary trust — A legal structure where a trustee decides how to divide income among a group of beneficiaries — often used by wealthier families to direct income to whichever member pays the lowest tax rate. 

Exchange-traded fund (ETF) — A bundle of shares or other assets that trades on the stock exchange like a single share. Popular with younger investors as a low-cost, low-effort way to invest in the market. 

Productivity — How much output an economy produces for each hour of work. Long-run wage growth and improvements in living standards depend on it — without productivity gains, an economy only grows by adding more workers or working longer hours. 

Instant asset write-off — A tax rule that lets small businesses deduct the full cost of eligible equipment in the year they buy it, rather than spreading the deduction over several years. 

R&D Tax Incentive — A federal scheme that reduces the tax bill of businesses that invest in research and development, intended to encourage innovation. 

Nuisance tariff — A small import tax that raises very little revenue but creates compliance and paperwork costs that often exceed what's collected — making it a net drag rather than a useful source of funds. 

Image source: ABC News, Ian Cutmore