Federal budget 2026: biggest changes and what they mean

You may be wondering what all this budget talk has been about.

Just like a family that has to balance household income with grocery bills, school fees and mortgage repayments, the Federal Government also keeps a budget, and every year in May, it outlines any changes to the way money will be allocated to the important services funded by our taxes.

This year’s budget announcement came during the biggest global oil shock* in history, where soaring fuel prices have driven up the prices of goods and services and interest rates have increased three times in a row, putting financial pressure on families across the country.

Here are some of the biggest items in Treasurer Jim Chalmers’ budget for 2026 – a budget that has made bold changes to the taxation system in order to address housing inequality while promising more money in the back pocket of working Australians.

THE FUEL CRISIS
With the Middle East conflict still on shaky ground, the Federal Government has prioritised fuel security in this year’s budget. The government has allocated $7.5 billion to secure more fuel from international partners, which includes $3.2 billion to fund a fuel security reserve located in Australia.

One billion extra litres of petrol and diesel will also be secured for March to June.

In terms of making fuel cheaper for motorists, $2.9 billion has been set aside to halve the fuel excise, which is a federal tax on petrol and diesel, and reduce the heavy vehicle* road user charge to zero for three months.

In order to provide better energy security, 20 per cent of gas exports will be reserved for Australians.

MAJOR PROPERTY TAX CHANGES
Perhaps one of the most talked about changes in this budget has been the overhaul of property tax laws that will affect property investors.

The capital gains tax (CGT)* 50 per cent discount will be replaced with inflation indexations* from July 2027, with a one-year-grace period*.

A minimum 30 per cent tax rate on CGT will be in place from July 2027.

The change means that when new investors sell their properties in the future, they will be taxed differently on any growth the property has achieved. The current system was introduced in 1999 and simply requires investors who have owned a property for more than 12 months to halve their capital gains* and add the amount onto the year’s income at the time of sale. They then get taxed according to their overall income bracket*.

The new system will see any gains above inflation* taxed at a flat 30 per cent minimum tax rate, separate to the rest of their yearly income.

Negative gearing*, where investors claim the cost of owning an investment property as a deduction* against their income, will be restricted to new builds from July 2027.

The reforms will be grandfathered, meaning that investors who already owned a property before budget night won’t be affected by the changes.

The government has been criticised for breaking an election promise by making these changes, however it claims to have done so to help younger Australians buy a home. By removing incentives for investors, the reforms could mean less demand, which could slow house price growth in a market where many young Australians are feeling priced out.

TAX BOOSTS FOR WORKERS
All Australian workers will get a $250 boost in the form of a tax offset*, starting in the second half of 2027. This will help to save all Aussies a little bit more money at tax time by reducing the amount of tax they owe.

There will be a tax cut of one per cent to the bottom marginal tax rate (from 16 per cent to 15 per cent, then 14 per cent in 2027).

In addition, all workers will be able to claim up to $1000 in tax deductions without needing to show receipts for the expenses they claim.

HEALTHCARE FUNDING
The government has pledged $1.8 billion over the next four years to make 137 Medicare Urgent Care Clinics permanent, to help Aussies avoid going to the emergency department for non-life threatening yet urgent health needs. In addition, $25 billion has been allocated for public hospitals and $5.9 billion has been set aside to list more medicines on the PBS*. The funding will be welcome news to kids with chronic illnesses like cystic fibrosis*, where medication can cost hundreds of thousands of dollars each year to access.

WHAT ARE THE CUTS TO THE NDIS?
The NDIS* will have $15 billion cut over the next four years, removing 160,000 people from the scheme. As part of the overhaul, $2 billion will be allocated for the Thriving Kids* program, which has been established to assist neurodivergent* children and kids with developmental delays at school, while $3 billion will be allocated for other foundational supports outside the NDIS.

EDUCATION
There has been an allocation of $54.8 million to help childcare centres care for children with additional needs.

To improve safety for children, $17.6 million has also been set aside for national identity verification for childcare workers.

In great news for children’s health and wellness advocacy, $1.7 million has been set aside for Life Education’s Healthy Harold.

SOCIAL SECURITY
Parents holding back on their child support* payments will be targeted, with the government spending $182.6 million over four years to make sure these parents fulfil their financial obligations to their families.

More than $59 million over four years will go towards community housing* providers to help them provide social housing for over 4000 young people aged 16-24. For social security, $60 million will be allocated over four years to get 4300 homeless youth into housing.

WHAT ABOUT INDIGENOUS FUNDING?
The government has made a $1.2 billion commitment to Closing the Gap.

It will also double the number of Remote Jobs and Economic Development program jobs and improve housing quality and support for grocery stores in remote communities.

COST OF TRAVELLING OVERSEAS
Australian families and tourists heading overseas will have to pay an $80 exit fee after the government increased the passenger movement charge by $10. The change comes into effect from January 1 next year with the fee applying to all passengers departing by air or sea from Australia, regardless of whether they are Australian citizens or non-citizens intending to return.

However, passengers who have already purchased a ticket will benefit from a six-month transition arrangement.

POLL

GLOSSARY

• oil shock: when oil prices rapidly go up, leading to economic instability
• heavy vehicle: vehicles weighing more than 4.5 tonnes must pay a charge for every litre of diesel used on public roads to help cover infrastructure costs
• capital gains tax: the tax investors pay on any profits they make when selling assets like investment properties
• inflation indexations: the adjustment of an amount in line with the cost of living index
• grace period: a set amount of time after the due date where no penalties will be charged
• capital gains: the profits made from an investment
• income bracket: people are taxed according to their income bracket, or the specified range their income falls into
• inflation: the rising cost of goods and services
• negative gearing: when investors use their investment related expenses as a deduction against their income to reduce the amount they have to pay tax on
• deduction: an expense you can claim when doing your tax that reduces your income and thus reduces the amount of tax you have to pay
• tax offset: an amount that reduces the amount of tax you have to pay
• PBS: the Pharmaceutical Benefits Scheme, where the government subsidises the cost of certain listed medications to reduce the cost for patients
• cystic fibrosis: a genetic illness that causes damage to the lungs, digestive system and other organs
• NDIS: a government scheme that provided funding to people with disabilities to help them access support
• Thriving Kids: a national program being rolled out from October this year to help kids with autism and developmental delays that will be provided through schools and childcare centres
• neurodivergent: an umbrella term used to describe people with autism, ADHD, dyslexia and other conditions in which the brain processes things different to what is considered typical
• child support: payments made from one parent to another parent to help pay for the costs of raising children when the parents are separated or divorced
• community housing: long term affordable rental housing

EXTRA READING
Govt weighs property tax ‘break in’
Security net turned ejector seat
Oz ships in massive diesel haul

QUICK QUIZ
1. How is the government tackling the fuel crisis during this year’s budget?
2. What two major property tax reforms are being made?
3. How much is being cut from the NDIS?
4. What tax boosts will Australian workers get?
5. By how much is the cost of travelling overseas increasing?

LISTEN TO THIS STORY

CLASSROOM ACTIVITIES
1. What to spend, what to cut?
What do you think the government should spend more money on? What do you think they should cut back on? Write a list of items for both questions. For each item, write sentences explaining your choices.

Time: Spend at least 30 minutes on this activity
Curriculum Links: English, Economics, Civics and Citizenship

2. Extension
Is the federal budget about running the country as well as possible … or about getting votes at the next election? Use information about this year’s budget to write paragraphs explaining your opinion on this question.

Time: Spend at least 30 minutes on this activity
Curriculum Links: English, Civics and Citizenship, Economics

VCOP ACTIVITY
Wow word recycle
There are plenty of wow words (ambitious pieces of vocabulary) being used in the article. Some are in the glossary, but there might be extra ones from the article that you think are exceptional as well.

Identify all the words in the article that you think are not common words, and particularly good choices for the writer to have chosen.

Select three words you have highlighted to recycle into your own sentences.

If any of the words you identified are not in the glossary, write up your own glossary for them.

Extension
Find a bland sentence from the article to up-level. Can you add more detail and description? Can you replace any base words with more specific synonyms?

Down-level for a younger audience. Find a sentence in the article that is high level. Now rewrite it for a younger audience so they can understand the words without using the glossary.