By Lucas Lewit-Mendes and Dr Wesa Chau

What’s next after the budget

This month’s federal budget included three major tax changes – cutting back tax concessions for negative gearing, capital gains tax, and trust distributions. Some of this revenue will be returned with a $250 tax offset for working Australians, providing a much-needed boost to households on lower incomes. Disappointingly, however, income support payments such as JobSeeker and Commonwealth Rent Assistance were left untouched despite them being outpaced by inflation.

This insight piece focuses on whether the remainder of Labor’s term in government is the right time for even more ambitious tax reform.

How substantial were the budget changes?

The capital gains tax (CGT), negative gearing, and trust distribution tax changes are significant reforms.

The 50 per cent CGT discount will be replaced with an inflation adjustment, reflecting the original intent of the discount. On average, assuming the RBA hits its inflation target, this will only slightly reduce the effective discount to around 40-45 per cent, but it will make investors more attuned to the uncertainty of capital growth. If property prices continue to skyrocket in some capital cities[1] and inflation returns to the RBA target, the effective discount under the new system will be lower for property. Crucially, the changes will only be partially grandfathered – that is, the 50 per cent discount will apply to past capital gains, but the inflation adjustment will apply to future gains, even on existing assets.[2]

This was combined with a tightening of negative gearing – now investors can only deduct rental losses from rental income, instead of from unrelated labour income. This combination of changes will make property investment less lucrative, and more first home buyers will outbid investors at auctions.

There will also be a minimum tax rate of 30% on trust distributions, with an exemption for farmers. This will prevent mostly high-wealth Australians from minimising tax by re-arranging their affairs.

Together, these changes will raise $6.75 billion in their first year of full operation (2029-30)[3], but that will increase over time as the grandfathering arrangements fade away.

The revenue raised will help fund a $250 Working Australians Tax Offset (WATO), effectively raising the tax-free threshold from $18,200 to $19,985. This is highly progressive, because low-income earners will receive more money as a share of their income.

Altogether, this is clearly the most significant tax reform package since the introduction of the GST in 2000.

Will there more tax reform?

Does the current political and economic landscape meet the prerequisites for more tax reform? Building on lessons from past tax reform efforts, some more successful than others, this paper assesses whether another round of tax reform is feasible in this term of government.

Lessons from past tax reforms

Paul Tilley’s book, “Mixed Fortunes: A History of Tax Reform in Australia” outlines the mostly disappointing history of tax reform in Australia, including missed opportunities and policy reversals. However, there have also been some major successes, namely the 1942 income tax unification, the 1985 income tax and capital gains reforms, and the 2000 GST introduction.

Tilley outlines three essential ingredients for a tax reform-friendly environment.[4]

• A burning platform
• A favourable political environment, which we have expanded into four sub-components:
  • Foundational review and ongoing debate
  • Political capital
  • Social license
  • Political leadership
• Fiscal room

To make the case for tax reform, governments need to establish that there is a problem worth solving, and they need the political and fiscal leeway to implement difficult policy change.

A burning platform

A burning platform is a compelling or urgent reason for reform. The 1942 income tax unification was required to finance Australia’s involvement in World War Two[5]; the 1985 income tax reforms followed a period of high inflation and dissatisfaction about income tax minimisation[6]; and the 2000 GST reform came as a response to several rulings about the constitutionality of state taxes, which drew attention to the states’ tenuous revenue-raising capacity.[7] The budget changes this month have come in response to concerns about intergenerational inequity and housing affordability.

Australia faces several economic challenges that call for tax reform: housing affordability and wealth inequality will continue to be concerns, as well as Australia’s productivity slump and ongoing budget pressures. There is strong public appreciation about the depth of these challenges, and there is a strong case for tax reform to address all four challenges.

Foundational review and ongoing debate

Previous tax reforms all followed major foundational reviews of Australia’s tax system.[8] The 1942 income tax unification followed two royal commissions on taxation in 1920–23 and 1932–34; the 1985 income tax reforms followed the 1975 Asprey review; and the 2000 GST reform followed the 1998 A New Tax System review (though a consumption tax had first been recommended in the Asprey review and had been on the political agenda since 1991). All three reforms had been debated for at least 10 years before being implemented.

The 2009 Australia’s Future Tax System Review (Henry Tax Review) provides a blueprint for tax reform today, and the capital gains tax changes partly build on that review. Additionally, the Economic Reform Roundtable in August 2025 lays the foundations for ongoing debate on tax reform throughout this term of government, while MP Allegra Spender’s ongoing work on tax reform provides further impetus for discussion.

Political capital

Due to the political difficulty of tax reform, the government must have a high level of political capital.[9] Both the 1985 income tax and 2000 GST reforms were implemented by governments with commanding majorities.[10] Similarly, the Albanese Government secured its second term with a significant majority.

All three earlier reforms were put on the agenda during the government’s first term, which allowed them to blame problems on the previous government. For example, during the Hawke Government’s 1984 election campaign (just 18 months after winning their first election), their policy statement explicitly referred to “tax avoidance and evasion, which remain as features of the tax system which the Government inherited”.[11] The current government does not have this luxury after six years in office, but the opposition’s unpopularity provides room for more ambition.

Social license

The biggest question will be whether the government has the social license to implement more tax changes in this term of government. Back in 2025, the Albanese Government all but ruled out tax reform in this election cycle, repeating earlier comments prior to the election.[12] If the public perceives this as a backflip or untruthful, this could rule out the possibility of further tax reform. On the other hand, if the public accepts that reform was needed, this could be the first stage in a series of reforms.

While the changes to housing taxes have largely been accepted by the public and even the property industry[13], the application of capital gains tax to shares has created significant backlash, including among younger generations who the changes were supposed to benefit. Share investors and the startup sector have been particularly vocal.[14] While the case for housing reform was clear, the government failed to build a compelling case for higher taxes on all capital gains. Should the government wish to make further tax changes at the next election, it must win back its social licence and highlight the need to address a burning platform.

Political leadership

Many commentators have noted that previous reforms featured particularly reform-minded Prime Ministers and Treasurers. Prior to this month’s budget, while Treasurer Jim Chalmers has consistently signalled a willingness to undertake ambitious reform, Prime Minister Anthony Albanese had shown less enthusiasm.[15]

This budget tax package is a courageous move. However, the government’s interest in reform has largely followed the tide of popular support to address housing affordability, rather than directly making the case to the Australian public. Thus far, the government has steered clear of controversial ideas such as taxing superannuation earnings in retirement or inheritances. Future reforms will rely on advocates, media, and the Australian public making the case to government that change is needed.

Fiscal room

Previous reforms came at a short-term fiscal cost to ensure there were enough “winners” to mitigate the political costs of reform.[16] The 1985 income tax reforms cost the budget around $3 billion per year (4 per cent of tax revenue) and the 2000 GST reform cost around $7 billion per year (3.5 per cent of tax revenue). However, over the long-run, these packages were possibly still budget-positive due to stronger economic productivity and the cumulative effects of bracket creep.

While a budget negative package may be necessary, it is not sufficient to achieve a successful tax reform. The 2012 carbon tax was accompanied by a household assistance package including income tax cuts and increased family payments and pensions, which overcompensated the average household[17], but the tax was still unpopular and was later repealed by the Abbott Government.[18]

The federal budget is currently in a precarious position. The structural deficit – the ongoing gap between revenue and spending that is not driven by annual fluctuations – is estimated to be around $50 billion per year, or 2 per cent of GDP[19], although this was before the recent NDIS savings measures. Last year’s Economic Reform Roundtable only sought recommendations that were “budget neutral at a minimum or potentially budget positive”.

Arguably the budget package reflects this difficult fiscal position. On net, the tax changes are revenue neutral over the next four years, but will raise $77 billion over 10 years[20], unless the government provides further tax cuts in the coming years to counter bracket creep. On one hand, that is a significant risk to its political success. On the other hand, it gives the government breathing room to deliver revenue negative reforms in future budgets, such as lifting income support payments or fixing family benefit payments (see details below).

Is more tax reform feasible in this term of government?

In the table below, we assess the favourability of Australia’s current political and economic landscape for tax reform. This applies to the remainder of this term in government, once the dust has settled on this month’s budget changes, with possible implementation after the 2028 election. Many of prerequisites are met in some capacity, but social license and fiscal room are potential barriers to further reform.

Is now the right time for tax reform?

What’s next?

Much more still needs to be done to make the tax and transfer system fairer.

As of the 2021 Census, there were 640,000 low-income Australian households spending over 30% of their income on rent (a common measure of housing insecurity), living in overcrowded homes, or homeless.[21] Increasing Commonwealth Rent Assistance and increasing the JobSeeker payment are the simplest and most direct ways to address housing insecurity for the most vulnerable Australians, as recommended by the government’s own Economic Inclusion Advisory Committee.[22]

There is unfinished business on super tax concessions[23], which, despite recent changes, still favour wealthy Australians. We also need to fix family benefit payments so that both parents in dual-income families can stay in the workforce without losing most of their benefits, boosting both gender equality and workforce participation.[24] Western Australia’s generous GST deal should be repealed[25], while more can be done to tax supernormal profits in the mining, gas, and banking industries, without burdening more competitive industries.[26]

These are just some examples of how to make our tax system work better for all Australians. Public awareness and debate about the need for tax reform is at a high point. If the government can ride the wave of opposition against this month’s budget, this term of government remains a significant opportunity to build a more equitable and productive economy.

References

[1] Jason Dasey, ‘Real estate prices set records with six capitals now in ‘million-dollar club’ and Melbourne rebounding strongly’, ABC News (online, 22 January 2026) <https://www.abc.net.au/news/2026-01-22/australian-real-estate-median-home-prices-domain-report-millions/106251932>.

[2] Commonwealth, ‘Tax Reform’, Budget 2026–27 (Web Page, 2026) <https://budget.gov.au/content/04-tax-reform.htm>.

[3] Commonwealth, Budget Measures: Budget Paper No 2: 2026–27 (May 2026) <https://budget.gov.au/content/bp2/download/bp2_2026-27.pdf>.

[4] Paul Tilley, Mixed Fortunes: A History of Tax Reform in Australia (Melbourne University Press, 2024).

[5] Paul Tilley, Early federation reviews and 1942 income tax unification (ANU Tax and Transfer Policy Institute, 2020) <https://crawford.anu.edu.au/sites/default/files/2025-02/complete_early_federation_tilley_sep_2020.pdf>.

[6] Paul Tilley, 1985 reform of the Australian tax system (ANU Tax and Transfer Policy Institute, 2021) <https://crawford.anu.edu.au/sites/default/files/2025-02/complete_tilley_wp_april_2021.pdf>.

[7] Paul Tilley, 2000: A new tax system (ANU Tax and Transfer Policy Institute, 2021) <https://crawford.anu.edu.au/sites/default/files/2025-02/complete_wp_p_tilley_july_2021.pdf>.

[8] Paul Tilley, Mixed Fortunes: A History of Tax Reform in Australia (Melbourne University Press, 2024).

[9] Ibid.

[10] The Howard Government was only narrowly returned after they took the GST to the 1998 election, but they had won the previous 1996 election with a 94-49 seat majority.

[11] Paul Tilley, 1985 reform of the Australian tax system (ANU Tax and Transfer Policy Institute, 2021) <https://crawford.anu.edu.au/sites/default/files/2025-02/complete_tilley_wp_april_2021.pdf>.

[12] Maani Truu, ‘Prime minister plays down tax reform opportunity at productivity meeting’, ABC (online, 7 August 2025) <https://www.abc.net.au/news/2025-08-07/pm-plays-down-tax-reform-opportunity-at-productivity-meeting/105623632>.

[13] Phillip Coorey, ‘Return to pre-1999 CGT discount no big deal, says industry’, Australian Financial Review (online, 25 April 2026) <https://www.afr.com/politics/federal/return-to-pre-1999-cgt-discount-no-big-deal-says-industry-20260424-p5zqrz>.

[14] Clare Armstrong, ‘Labor has picked a fight on tax, but not all critics are vested interests’, ABC News (online, 24 May 2026) <https://www.abc.net.au/news/2026-05-24/labor-budget-defence-backlash-capital-gains-housing-wages/106692288>.

[15] Phillip Coorey, ‘‘A wake-up call for Jim’: A tale of a PM and his treasurer’, Australian Financial Review (online, 14 October 2025) <https://www.afr.com/politics/federal/a-wake-up-call-for-jim-a-tale-of-a-pm-and-his-treasurer-20251014-p5n2aa>.

[16] Paul Tilley, Mixed Fortunes: A History of Tax Reform in Australia (Melbourne University Press, 2024).

[17] John Daley and Danielle Wood, A GST Reform Package (Grattan Institute, 2015) <https://grattan.edu.au/wp-content/uploads/2015/12/834-GST-Reform-Package.pdf>.

[18] Paul Tilley, Australia’s Future Tax System (Working Paper No 17/2021, Tax and Transfer Policy Institute, Crawford School of Public Policy, ANU, October 2021) <https://crawford.anu.edu.au/sites/default/files/2025-02/complete_p_tilley_wp_oct_2021.pdf>.

[19] Danielle Wood, Kate Griffiths, and Iris Chan, Back in black? A menu of measures to repair the budget (Grattan Institute, 2023) <https://grattan.edu.au/wp-content/uploads/2023/04/Grattan-Back-in-Black-1.pdf>.

[20] Paul Sakkal, ‘Albanese gambles on support from younger Australians as he dramatically shifts wealth’, The Sydney Morning Herald (online, 12 May 2026) <https://www.smh.com.au/politics/federal/albanese-gambles-on-support-from-younger-australians-as-he-dramatically-shifts-wealth-20260505-p5ztux.html>.

[21] Ryan van den Nouwelant, Laurence Troy and Balamurugan Soundararaj, Quantifying Australia’s Unmet Housing Need: A National Snapshot (Report, City Futures Research Centre, UNSW Sydney, 2022) <https://apo.org.au/sites/default/files/resource-files/2022-11/apo-nid320820.pdf>.

[22] Economic Inclusion Advisory Committee, 2026 Report to Government (Report, 2026) <https://www.dss.gov.au/system/files/documents/2026-04/economic-inclusion-advisory-committee-2026-report-government.pdf>.

[23] ‘The Super Tax System Will Now Be Fairer, but There’s Plenty of Work Left to Do’, Per Capita (Web Page, 15 February 2026) <https://percapita.org.au/the-super-tax-system-will-now-be-fairer-but-theres-plenty-of-work-left-to-do/>.

[24] Ana Gamarra Rondinel, Guyonne Kalb and Miranda Stewart, Updating Family Payments for Work and Shared Care: Submission to the Economic Reform Roundtable (Life Course Centre and Melbourne Institute, July 2025) <https://cdn.theconversation.com/static_files/files/3880/GamarraKalbStewartEconomicReformRoundtableSubmissionFinal.pdf>.

[25] Saul Eslake, The Worst Australian Public Policy Decision of the 21st Century Thus Far (Policy Brief No 2/2024, Tax and Transfer Policy Institute, Crawford School of Public Policy, ANU, 2024) <https://crawford.anu.edu.au/sites/default/files/2025-03/Complete%20S%20Eslake%20Policy%20Brief%202_2024.pdf>.

[26] Alex Robson, ‘Company Tax Reform for a More Productive Australia’, Productivity Commission (online, 7 January 2026) <https://www.pc.gov.au/media-speeches/articles/company-tax-reform/>.