top of page
Search

What Does the 2026-27 Federal Budget Mean for Young Australians?

Source: Bethany Rae, AFR


This Tuesday, Treasurer Jim Chalmers delivered the 2026–27 Federal Budget against a challenging economic backdrop with inflation sitting at 4.6% and ongoing pressure from the global oil shock (RBA, 2026). Yet despite the difficult conditions, the budget introduced new reforms and overhauls that have sparked significant conversation. So what do these changes actually mean for young Australians?


Tax Wins for Income Earners

Major changes are coming to the personal income tax system, with the government rolling out multiple rounds of cuts that stack on top of each other. From 1 July 2026, the tax rate on taxable income between $18,201 and $45,000 will drop from 16% to 15%, falling further to 14% from 1 July 2027 (Australian Government, 2026a). For early-career workers, this is a meaningful reduction. Those earning in this bracket will keep more of every dollar they earn, with the benefit compounding as the rate drops again next year.


The government is also introducing a $1,000 instant tax deduction for work-related expenses from 2026–27, allowing 6.2 million workers to reduce their taxable income without needing to keep receipts or itemise individual claims (Australian Government, 2026a). It is worth noting that those with work-related expenses exceeding $1,000 can still claim the higher amount through the usual process.


From 2027–28, workers will also receive a new $250 Working Australians Tax Offset, a permanent annual reduction in tax liability available to all 13 million Australian workers. This raises the tax-free threshold by nearly $1,800 to $19,985, the largest permanent increase of its kind since 2012–13 (Australian Government, 2026a). Taken together, the cumulative impact is substantial. An Australian worker on an average income of $81,245 ends up being $2,816 better off per year from 2027–28, a tangible shift for young workers still building their financial footing.


Boost for First Home Buyers

Home ownership has felt increasingly out of reach for younger Australians, with rising prices and high interest rates pushing the dream further away for many and resulting in declining home ownership (Parliament of Australia, 2025). In the budget, the government has responded with a series of supply-side measures aimed at easing that pressure. A $2 billion injection into local infrastructure will support the construction of up to 65,000 new homes, to add to a market that has struggled to keep pace with demand (Tregenza & Dick, 2026). Taken together with reforms to negative gearing and capital gains tax, the government projects these changes will shift ownership of 75,000 homes from investors to first home buyers over the coming decade (Australian Government, 2026b). But what exactly do these reforms involve and how do they work? 


Negative Gearing and Capital Gains Tax Discount

Negative gearing has become one of the most talked-about elements of this budget. In simple terms, negative gearing refers to a situation where the costs associated with an asset, such as maintenance expenses and mortgage interest, exceed the income it generates (Treasury, 2012). For property investors, this typically means spending more on an investment property than they earn in rental income, with those losses then deducted from their taxable income to reduce how much tax they pay.


This arrangement has systemically favoured landlords. Even when a property runs at a technical "loss", investors can still build wealth through capital growth, banking on the high likelihood of the value of their property rising year on year (Crowley, 2026). Combined with the capital gains tax discount, which reduces the tax owed when an asset is eventually sold, property investment has historically offered significant tax advantages which are unavailable to the average first home buyer.


That is now changing. Any investment property purchased after 12 May 2026 will no longer be eligible for negative gearing, unless it is a newly built home. Existing investment properties are exempt, so current landlords remain unaffected. Similarly, the CGT discount on new investment property purchases will be reduced, making the investment less attractive for those eyeing established housing (Australian Government, 2026b).


It is worth noting that negative gearing is typically eliminated after some time as mortgage repayments are usually the main reason a property runs at a loss, and most investments eventually become positively geared as rental income grows and debt is paid down (Crowley, 2026). The new rules are therefore largely aimed at the entry point: discouraging new investors from competing with first home buyers for established properties, and steering demand toward new housing supply instead.


Whether these reforms actually improve home ownership is still uncertain. On one hand, reducing investor appeal for established housing could moderately increase rental pressure over time, with Treasury estimating rents could rise by around $2 per week for a household paying the current median rent. On the other, many economists see the changes as long overdue; Greg Jericho, Chief Economist at The Australia Institute, called it "probably the single best thing in the budget", arguing that it will have a lasting positive effect for many Australians (Silva, 2026). Either way, it represents the most significant shift to property taxation since 1999 and one that young Australians will be watching closely as it plays out in the market over the coming years. 


Additionally, while much of the conversation has focused on property, the CGT reforms extend beyond the housing market. The current flat 50% CGT discount will be replaced with indexation aligned with inflation, meaning investors will only be taxed on their real capital gain rather than a nominal one. A minimum tax rate of 30% will apply to real capital gains accruing from July 2027. For share market investors, this could actually be a relative win with property investment becoming less tax-advantaged and analysts suggest capital could shift toward equities as an asset class (Chalmers et al., 2026). 


The Bigger Picture

Even with these reforms, it is important to temper expectations. Treasury forecasts inflation to peak at 5% this year and economic growth to slow to 1.75% in 2026–27, meaning cost-of-living pressures are not disappearing overnight (Jurkovic, 2026; Glynn, 2026). The tax cuts and deduction measures will put more money in workers' pockets, but for many young Australians, the gap between income and the cost of living, let alone the cost of buying a home, remains wide.


What this budget does signal, however, is a meaningful shift in priorities. For the first time in a long time, the tax system is being adjusted with younger Australians more explicitly in mind, whether through fairer income tax rates, greater accessibility to homeownership, or winding back concessions that have historically benefited older, wealthier investors at the expense of first home buyers.


The negative gearing and CGT reforms in particular will take years to play out in the property market. Their true impact on prices, rental supply, and homeownership rates will depend heavily on how the construction industry responds to the incentives being pointed toward new housing, and whether 65,000 new homes actually get built.


While the budget takes meaningful steps toward supporting younger Australians through increased rent assistance and income tax cuts, the absence of any changes to HECS-HELP means students continue to carry the same debt burden; a pressure that remains significant for young Australians against the rising cost of living and slowing economic growth.


For now, this is a budget worth paying attention to. The reforms are real, the intent is clear, and the conversation they have started about fairness, housing, and who the tax system is designed to serve is one that young Australians should absolutely be part of.


Until next time, 

WIF 💙 

Written by Loshantti Thirukumar 


References

 
 
 

Comments

Women in Finance Logo
  • Instagram
  • Facebook
  • LinkedIn
bottom of page