Scrapping tax breaks for landlords and property investors could yet be softened by surprise tax cuts in next week’s budget, as Labor puts its broken promise on negative gearing as one of integrity.
Treasurer Jim Chalmers gave no indication that he was planning to cut income tax when asked on Monday, instead saying “we’ve already got tax cuts”. He also gave an example a policy that allows for a limit of $1000 tax cuts.
“I’ve seen rumors about tax cuts: I would just remind everyone that this is a tax-cutting government, it’s cutting income tax,” he said, referring to the small cuts that sparked opposition before the last election that will take effect in July.
However, Chalmers did not rule out further tax cuts, which could start next year. The sharp asked sources in the cabinet and other parts of the government if the budget, expected next Tuesday, would give workers a tax increase. Some of them echoed Chalmers’ comments, and others said they would prefer not to discuss the rumours. No one dismissed the prospect, though.
Giving income tax cuts has for years been touted as a political ploy to sell tax reform that would include higher taxes in other areas.
Labor is preparing to re-pass its failed 2019 tax agenda set by Bill Shorten, including rolling back negative gearing and capital gains tax breaks, and potentially taxing family trusts more heavily, as it aims to create a bigger income base and persuade voters to reject it. left-wing and right-wing economic populism. Labor will not pursue transparent credit changes, as opposition leader Shorten did.
Shorten, defeated by Scott Morrison in a battle over the breadth of his tax agenda, has won argued for years that his mistakes it was failing to balance tax increases in some areas with income tax cuts.
Two major reforms of the tax system – carried out by Paul Keating in the mid-1980s and John Howard at the turn of the century – included new taxes that were reduced and cuts in income tax.
Prime Minister Anthony Albanese and Chalmers played down any negative trend ahead of the election, although they did not offer a similar guarantee of capital gains tax. Chalmers suggested the backsliding could be justified, as the government did when it outlined its changes to stage 3 tax cuts last term.
“You build trust by making the right decisions for the right reasons,” Chalmers said Monday. “I will direct you, for example, to the necessary and I think the acceptable steps we took when it came to the 3rd step of tax cuts. When we reached different opinions, we explained why.”
Shadow treasurer Tim Wilson attacked Chalmers for pursuing a “full family savings tax suit”, paving the way for a traditional fight over tax rates between Labor and the Coalition.
“Chutzpah is Jim Chalmers arguing that he needs to betray Australians to be trusted,” Wilson said.
Weighing against the case for tax cuts is the need to take money out of the economy control inflationwhich was above the target of the Reserve Bank even before the war in Iran started. Chalmers and Finance Minister Katy Gallagher announced on Monday that Labor will improve the bank’s income, making the budget as “very responsible”. Labor has used near record levels, prompting criticism that it has added to inflation.
But consumer confidence and purchasing power have been hit by high oil prices caused by the closure of the Strait of Hormuz, putting pressure on Labor to make life easier for households. Labor has already spent nearly $2.5 billion on fuel tax cuts.
“We still have a lot of work to do this week,” Chalmers said.
Any change to negative gearing – the ability to compensate a person’s taxable income for losses arising from rental property – would be a breach of a promise made by the Albanians in a debate against then opposition leader Peter Dutton last year.
The Albanians declared that any change to negative gearing was “not on the table” and the change would not help to build more houses. At the time, Dutton said he did not believe Albanese’s comments.
Negative gearing changes may be raised and used for new buildings to encourage housing supply.
Productivity Commission chair Danielle Wood said last week it would make sense for Labor to combine property tax changes with income tax cuts.
“We certainly would … hope to see these kinds of changes reduce the pressure on income tax over time,” he said on ABC’s. Local people podcast.
When asked about the new tax cuts, Chalmers only talked about Labour’s existing “top-up” tax cuts, which start in July. They are modest, giving just $5 a week to people earning more than $45,000 a year, and will cost the budget $3 billion in 2026-27.
The second cut starting in mid-2027 is predicted to cost $6.7 billion, while the introduction of the $1,000 standard deduction will cost the budget $1.2 billion.
High inflation is expected to force the Central Bank on Tuesday to raise interest rates for the third time in a row. Another increase would mean an increase in repayments on a $600,000 mortgage of almost $300 a month.
Financial markets are positioning for a 75 percent hike with at least one more hike expected by October.
HSBC Australia chief economist Paul Bloxham said Chalmers could take pressure off the Reserve Bank through targeted spending cuts.
“A surgical approach with a monetary scalpel … will reduce the need for RBA governor (Michele) Bullock to have to deliver more blows with the hammer,” he said.
The Reserve will release its new forecast on the economy after the interest rate announcement on Tuesday afternoon. That is expected to confirm the slowdown caused by the Iran war.
ANZ commodity analysts Daniel Hynes and Soni Kumari warned that even if oil demand starts to ease and production starts to pick up in the coming months, there will be a permanent loss of capacity that will bring global markets into next year.
They even said the threat of a possible sudden closure of the Strait of Hormuz meant Brent crude could stay above $US90 a barrel for the rest of 2026.
“Even if the worst oil shock ends by the end of 2026, the root causes of the Middle East conflict are unlikely to end. Iran has proven it can close the Strait of Hormuz and it can do it again,” they said.
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Paul Sakkal is a Senior Political Writer. He previously covered Victorian politics and won the Walkley Award and the 2025 Press Gallery Journalist of the Year. Contact him safely on Waves @paulsakkal.14.Connect via X or email address.
Shane Wright is the senior economics writer for The Sydney Morning Herald and The Age.Connect via X or email address.
