All aboard the Budget boat: who gets thrown overboard and who gets a lifeline?

“We’re heading into choppy waters! Squeeze the mortgage holders and throw a few employees overboard to steady the ship!”

Those were the words ascribed to a cartoon depiction of Reserve Bank of Australia (RBA) Governor Michele Bullock as she sails the good ship Australian Economy through choppy waters.

Cartoonist Cathy Wilcox nailed the reality that so much monetary policy decision-making is eschewed by the Federal Government in favour of letting the RBA be the fall guy when it comes to reining in inflation and housing costs.

Economy overheated? Inflation too high? Everyone having a job proving too much for the economy? Smash the borrowers who have high debt and are already struggling with those very same inflationary pressures, and get a few people sacked.

That seems to be the essence of monetary policy in Australia, regardless of the party taking their turn at the ship’s helm.

On the 12 May this year, Treasurer Jim Chalmers will be flanked by the political powerbrokers of the dominant Labor Party as he presents to the Australian House of Representatives and the people what will be Prime Minister Anthony Albanese’s first budget since winning the 2025 election and their fifth since coming to government in 2022.

The question now is, will the government use its comfortable majority in parliament to forge ahead with bold housing and economic reforms or will it continue to hide behind the likes of the RBA and let a small cohort of Australians carry the can for everyone else?

Much of the inevitable speculation around what the 2026 federal budget will (or won’t) hold has centred on changes to the capital gains tax discount.

Media reports have suggested the government is considering cutting the capital gains tax concession from 50 to 25 percent, which was actually Labor’s policy in the 2016 (in which Liberals leader Malcolm Turnbull became Prime Minister) and 2019 elections (won by the Liberal Party’s Scott Morrison).

Proposed changes to negative gearing cost Labor leader Bill shorten the ‘unlosable election’ in 2019.

So governments understandably tread cautiously when attempting to hit the hip pocket of any cohort of society, especially when it revolves around housing.

But today’s economic environment is very different to 2019. Housing affordability in the past five years has plummeted to the point where home ownership is simply no longer an option for a significant portion of the population.

What might the government do for housing

Expectations are growing of an ambitious budget being handed down.

By the Treasurer’s own admission, the latest conflagration in the Middle East has only heightened the need for reform.

“Any reform would be guided by some clear principles,” Mr Chalmers told a gathering of business economists in Melbourne.

“Firstly, we recognise an outdated tax system is weighing on the opportunities faced by younger Australians and future generations, so any changes would have a substantial focus on our intergenerational responsibilities. 

“Second, we are focused on better incentivising productive business investment, if we can afford to.  

“And third, making the system simpler and more sustainable.”

Independent MP Allegra Spender, alongside a number of economists, has argued the 2026 federal budget presents a rare window for meaningful tax reform, pointing to Labor’s commanding parliamentary majority and the extended period before the next election.

A parliamentary inquiry led by the Australian Greens into the capital gains tax discount concluded the policy disproportionately advantages higher-income Australians, tilting the housing market in favour of investors rather than owner-occupiers.

Labor senators Ellie Whiteaker and Richard Dowling, who endorsed the findings, noted that younger Australians are navigating a markedly different economic landscape compared to earlier generations.

Those younger Australians have every reason to feel aggrieved.

It is significantly harder for them to buy a home today compared to 10 years ago, with the time required to save a deposit roughly doubling to more than 12 years in many areas. While home prices have nearly doubled over the past decade (rising 99 per cent since 2012), average wages have only increased by roughly 42 per cent, creating a massive affordability gap.

Rising interest rates are very unlikely to suppress property price growth to such a point it becomes significantly more affordable.

Disaffected voters have been turning to one party in particular; One Nation. While many perceive it as the party of refuge for disgruntled older people bemoaning the loss of the good old days, the reality is different.

The support of 18- to 34-year-olds for One Nation has gone up in line with the party’s overall vote in the past year or so. Labor might be in a strong position but it cannot afford to lose its high appeal among younger voters when it only gained 34 per cent of the primary vote.

So, the stage is set for a federal budget that delivers genuine reform that addresses the rampant worsening of national wealth inequality.

Or perhaps not.

Not everyone wants tax reform

For all the momentum that is building in support of tax reform, there is an equally coordinated push from industry warning against changes to the treatment of housing investment.

Some property and construction groups argue that, at a time when supply is already constrained, altering settings such as negative gearing or the capital gains tax discount risks doing more harm than good.

Industry-commissioned modelling suggests reducing these incentives would likely dampen new housing construction, with flow-on effects for both ownership and rental markets.

Their position is that private investors remain a critical source of funding for new housing, backing as many as two in five new builds. Any policy that discourages that capital, they argue, risks tightening supply further and placing additional upward pressure on rents at a time when affordability is already stretched.

The Property Council has taken a similar line, urging the government to focus less on tax increases and more on improving investment settings, planning efficiency and construction capacity.

In its pre-budget submission, it argued that Australia must compete harder for global capital and remove bottlenecks that prevent approved projects from being delivered, warning that governments alone cannot meet the nation’s housing needs.

In that context, the debate over tax reform becomes less about ideology and more about sequencing. Lift supply first, the industry says, and then consider broader structural changes.

Which leaves the government with a delicate balancing act.

Push ahead with reforms aimed at improving equity and risk constraining supply in the short term, or prioritise investment and delivery and risk entrenching the very imbalances those reforms are designed to address.

For many Australians, the government’s budget response will determine whether they get some smoother seas or are thrown overboard.