As we get closer to budget night, the speculation around what will or will not be included starts to get more and more specific.

There’s always a mix of noise and reality this time of year – but this budget feels a little different. The Government appears to have been more deliberate in testing ideas publicly, particularly around housing and tax changes. There may be some real changes this time around!

As budget night approaches, I thought it was worth digging a bit deeper into a couple of the big-ticket items that may be lurking in this budget [even though the devil will be in the detail].

 

Watch below, or if reading’s more your thing, keep scrolling!

Capital Gains Tax [CGT] discount – plenty of questions, not many answers

 

The potential reduction in the CGT discount has been one of the more consistently discussed measures.

At the moment, individuals and trusts generally receive a 50% discount on capital gains for assets held longer than 12 months. The idea of reducing that discount to say, 25% or 33% has been floating around for a while now.

Of course, Super Funds already have a 33% CGT Discount given the concessional tax rate they already have.

But here’s where it gets interesting – we still don’t know how this would actually be implemented.

 

1. surely not retrospective…?

It would be very surprising [and frankly problematic] if any change was applied retrospectively. A retrospective change would be highly contentious, and the publicly discussed models lean toward grandfathering or prospective application.

A more likely approach would be:

  • Applying the new discount to assets acquired after a certain date [maybe budget night], or
  • Potentially apportioning gains based on pre and post change periods [which gets messy quickly], or
  • Reverting to a CPI indexation of the cost base so tax only paid on the portion above inflation [just like the original CGT system]

If you remember when CGT was first implemented, it was announced and effective from that budget night.

From a policy perspective, setting a clear “go forward” date is the cleanest option. Anything else risks creating uncertainty and undermining confidence in the system.

 

2. what assets are we actually talking about?

Another big unknown: does this apply to all CGT assets, or just certain categories like residential property?

If it’s:

  • Resi-property only = then this is clearly a housing policy lever
  • All CGT assets = then it’s a broader tax reform measure targeting investment income

That distinction matters a lot.

A broad-based change would impact:

  • Shares and managed funds
  • Business sales
  • Commercial property
  • Investment portfolios more generally

Does it matter what type of entity owns the asset?

And that’s a much bigger conversation than just housing.

 

3. the flow-on impact [particularly for housing]

If the CGT discount is reduced – especially for resi-property – it raises a key question:

What happens to investor behaviour?

Potential impacts could include:

  • Reduced appetite for new property investment
  • Greater focus on yield over capital growth
  • Increased holding periods [to defer tax events]

And ultimately, this feeds into the rental market. The risk is, if investment slows:

  • Supply tightens
  • Rental pressure increases
  • Rents ultimately go up

Now, whether that actually plays out depends on the broader policy mix, but it’s a risk that cannot be ignored.

 

4. what about small business CGT concessions?

Importantly, there has been no meaningful indication that the Government is looking to change the Small Business CGT concessions.

That includes:

  • The 15-year exemption
  • The 50% active asset reduction
  • Retirement exemption
  • Rollover relief

These concessions are foundational to small business succession and retirement planning.

Could they be reviewed at some point? Possibly.
Have they been flagged in the current budget discussions? Not that we are aware of.

At this stage, they appear to be off the radar—which will be reassuring for a lot of business owners. That said, with the $6m threshold not being indexed, many business owners are starting to fall outside the eligibility.

 

negative gearing – the old favourite returns

 

Negative gearing has been debated for years, and it’s back in the conversation again—largely driven by housing affordability concerns.

But like CGT, despite the political carnage such policies have caused the Labor Party before, pressure seems to be mounting for some sort of change.  The big question, though, would be how.

 

1. incremental change feels more likely than a big reset

A full removal of negative gearing still feels politically unlikely. Let alone the potential impact on the rental market.

More plausible options may include:

  • Limiting it to new builds only
  • Capping the amount of deductible losses
  • Restricting access based on income
  • Denying deductibility of certain types of deductions, like they have with travel for investment properties

These types of changes may allow the Government to say they’re addressing housing affordability and inter-generational disparity in housing ownership, without completely disrupting the market.

 

2. the supply vs demand tension

There’s a bit of a policy contradiction here.

On one hand, reducing negative gearing makes property investment less attractive

On the other, we desperately need more housing supply

So unless changes are carefully targeted [for example, favouring new builds], there’s a real risk of:

  • Discouraging investment
  • Worsening rental shortages
  • Increasing rents

Which is the exact opposite of what they’re trying to achieve.

 

3. behavioural shifts are often underestimated

One thing we’ve seen time and time again is that investors adapt to chase better short or long term returns.

If negative gearing is restricted, we may see:

  • More investment via companies or structures [already becoming more common]
  • Greater focus on positively geared assets
  • Shifts into other asset classes entirely

So, the actual revenue impact for the Government, and the real-world impact could be very interesting.

 

inflation – the quiet driver behind the budget

 

While tax changes tend to grab the headlines, inflation is arguably the bigger force shaping this budget and economy at the moment.

We’ve come off a period of elevated inflation, and while it was moderating before the recent conflict in the Middle East, it’s not under control by any stretch of the imagination. That puts the Government in a tricky position.

Every budget decision has an inflation impact – this one in particular will be incredibly important.

 

1. the balancing act

If the Government:

  • Provides too much cost-of-living relief, it risks fuelling demand and keeping inflation higher for longer
  • Tightens too aggressively – it risks slowing the economy too much

So the likely approach may be very targeted, rather than broad-based.

Think:

  • Energy rebates
  • Fuel excise reductions
  • Rent assistance
  • Support for lower-income households

These types of measures are designed to relieve pressure without significantly boosting overall demand.

 

2. what could actually help reduce inflationary pressures?

There are a few levers the Government could pull that go beyond short-term relief:

  • Increasing supply (especially housing)
    More supply = less price pressure. Simple in theory, harder in practice.
  • Productivity improvements
    If businesses can produce more efficiently, cost pressures ease over time.
  • Workforce participation
    Policies that bring more people into the workforce can reduce wage-driven inflation.
  • Targeted spending restraint
    Not the most popular option but limiting new spending helps avoid adding fuel to the fire – NDIS seems to be the likely area targeted here.

 

3. why this matters for everything else

Inflation doesn’t sit in isolation.

It influences:

  • Interest rates [both for lending and savings]
  • Business confidence
  • Investment decisions
  • Household spending

Which means policies around CGT, negative gearing, and housing aren’t just tax decisions – they’re part of a broader economic equation.

 

a familiar one to watch – instant asset write off

 

It wouldn’t be a budget without some discussion around the instant asset write-off.

Over the past few years, we’ve seen repeated extensions [and tweaks] to the threshold, often announced quite late in the piece. It’s become one of those measures that businesses almost expect, but never quite have certainty around.

So, the question this time is simple:

Do they extend it again?

From a policy perspective, it makes sense:

  • It encourages investment
  • It supports cash flow
  • It’s relatively easy to administer

But it also comes at a cost to revenue, which matters more in a tighter fiscal environment. Although it may not be popular, could removing it actually have an impact on inflation in the economy?

My expectation? Another extension is certainly possible, but I wouldn’t assume it’s automatic, and the threshold or eligibility could easily change.

As always, timing will be key. These measures tend to be confirmed late, which makes planning a bit tricky for business owners.

 

the bigger picture [it’s not just tax]

 

While CGT and negative gearing are getting most of the attention, they’re really part of a broader theme.

This budget is shaping up as an attempt to:

  • Manage cost-of-living pressures
  • Improve the sustainability of the tax system
  • Hopefully try to get inflation under control

And importantly, from a political perspective, do it without increasing headline tax rates or make sure increases in taxes are targeted on a small section of the population.

That means:

  • Targeting concessions
  • Tightening existing rules
  • Some cuts tospending
  • Nudging behaviour rather than forcing it

I would not hold your breath for real tax reform like increasing GST, increasing mining resource tax [like David Pocock has discussed], addressing the taxation of subcontractors or state harmonisation of payroll taxes.

Last year, we wrote about what we would HOPE to see in the budget… these are all still relevant. You can read more here.

The sleeping giant in my opinion, is productivity.  For years and years now, we have experienced material increases in wages without a corresponding increase in productivity.  I would love to see some productivity initiatives included.

 

final thoughts

 

If there’s one takeaway at this point, it’s this:

We’re not dealing with a fully formed policy yet; we’re dealing with policy leaks as a way to test the public reaction.

But, the direction is clear:

  • Housing is front and centre
  • Tax concessions are under scrutiny
  • Structural changes are being considered

The detail will matter more than ever. As will the political courage to make some real changes.

Particularly with measures like CGT and negative gearing, where small design choices can have big economic consequences.

As always, we’ll wait for budget night to see what actually lands. There’s enough on the table already to suggest this won’t be a “business as usual” update.

 

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