Australia's budget targets housing with 2% growth slowdown

Australia’s Labor government unveiled its most ambitious budget in a generation, targeting property investors with sweeping tax changes it says will slow house price growth by 2 percent and address the “intergenerational unfairness” that has locked young buyers out of the market.

“We’re trying to rebalance the tax system,” Treasurer Jim Chalmers said in a post-budget interview, acknowledging the government had shifted its position on the contentious policy. “What we’re trying to do is to make sure that there are more affordable options for people to buy, particularly people who are buying their first home.”

The budget ends so-called “negative gearing” on non-newly built homes and alters how capital-gains tax is applied, measures expected to raise over $8 billion in two years. The changes are paired with a new $250 annual tax offset for 13.3 million workers, though that relief won’t begin until July 2027, likely just before the next federal election.

The policy shift represents a significant gamble for the government, which is breaking a previous election promise. The changes aim to add 75,000 first-home buyers over the next decade, but they land in an economy grappling with 5 percent inflation and warnings of further interest rate hikes from the Reserve Bank of Australia, which has already lifted rates three times this year.

A Reform Agenda or a Revenue Grab?

Economists are divided on whether the budget signals the start of a much-needed economic reform agenda or is simply a revenue-raising exercise that could worsen the housing crisis.

“I’d like to think it does open the door to a bigger, more ambitious reform agenda,” said Saul Eslake, a former chief economist at Merrill Lynch in Australia. Others, like AMP’s chief economist Shane Oliver, argue the property tax changes don’t go far enough without broader income tax reform to address Australia’s flagging productivity.

However, some are deeply skeptical. “It’s tinkering around the edges that will do next to nothing to solve the housing problems, which stem from a lack of supply,” said Stephen Walters, chief economist at Optimal Economics. “These tax changes risk making housing shortages worse.”

Political Backlash and Market Risks

The opposition was quick to label the budget a failure of honesty and economic management. “Broken promises, higher taxes, lower living standards and fewer homes,” Shadow Treasurer Tim Wilson told the ABC. While the Coalition indicated it would support the $250 worker tax offset, it signaled a fight over the broader housing and tax measures.

Treasurer Chalmers conceded the decision was made “in recent weeks” amid mounting pressure on housing. According to Treasury modeling, the changes will not cause prices to fall but will slow the rate of growth. A median house price, for example, would be about $19,000 lower than it otherwise would have been.

The changes come as Australia’s population is forecast to grow by 1.4 million people over the next four years, intensifying the focus on housing supply. With government spending set to outpace economic growth, some analysts fear the budget could fuel inflation, forcing the RBA to raise its cash rate to a potential 18-year high of 4.85 percent in 2026. For now, the budget marks a pivotal and contentious shift in Australia’s economic policy, with its success or failure set to define the political and economic landscape for years to come.

This article is for informational purposes only and does not constitute investment advice.