Tax cuts, housing overhaul and more: Your Federal Budget guide | The Pay Off with Sylvia Jeffreys

Added: 2026-05-13

[00:00:00]Welcome to this emergency episode of the payoff. We are doing a federal budget debrief today, of course, because that is what is dominating the headlines. Jim Charmers, a federal treasurer, handed down what has been described as the most consequential budget in many years. The headlines, a tax cut for working Australians, but also an overhaul of property taxes. A lot of people are wondering how this is going to impact them now and into the future. It's all a little bit complicated and convoluted if I'm totally honest. So, I've brought in a couple of experts to try to explain and demystify what has been announced in the last 24 hours. So, welcome to the show Joel Gibson and of course Amy Ramikas from the Australia Institute.

[00:00:45]Thank you both for being with me today and unpacking some of this. Um, first up Amy, I'll go to you. Jim Char has described this as an ambitious budget.

[00:00:55]How would you describe it?

[00:00:56]>> Look, he's not wrong when he's talking about structural reform in the budget.

[00:01:00]And by that I mean what he's doing to some of the tax settings. So he's essentially made the family trust no longer a tax haven which is means that there's no more benefit to parking assets and money in a family trust which means that you know some of those tax dodges that were being used by wealthy individuals no longer exist. They'll shift their money elsewhere. what they've done in terms of structural changes for the housing tax uh system is what is going to make the biggest difference not in the immediate term but into the future. So they've changed the capital gains tax discount. They're essentially phasing that out by mid 2027 so that it'll return to something that existed before John Howard and Peter Castello made those changes. And they've now quarantine negative gearing. So if you already own an investment property, you will continue to be able to negatively gear it. But if you want to buy an investment f uh property in the future, the only way you'll be able to negatively gear that is if you it is a new build. So you have to add to the housing stock in order to take advantage of that. So those are some very big structural changes that the government says it only really decided on in the last couple of weeks and that was in response to what they're calling generational inequity. uh and it just became so loud that they had to do something.

[00:02:23]>> And that's a really interesting point is have they addressed generational generational inequity when we now have some kind of two tier tax system Joel when it comes to property taxes. So those who are lucky enough to already be in the market um and negatively gearing properties, investment properties can continue to do so. Those who were yet to get into the market, perhaps were thinking about rent vesting, now don't have access to those tax incentives. How would this affect someone, a prospective property buyer, first home buyer who was considering rent vesting?

[00:02:58]>> Well, obviously, you won't be able to negatively gear that property anymore, so that's gone. But the changes to the capital gains tax won't stop you from rent vesting. You know, in the past, you got a 50% discount on the tax you paid when you sold that property. So, let's say you bought a million dollar property, you sold it for $2 million, you only paid tax on half a million dollars of capital gain. Um, under the new system, you will pay tax on the capital gain based on um how much inflation there's been over that period.

[00:03:28]Let's say you owned it for 10 years. In the last 10 years, in indexed inflation was about around 32%. So you'd pay uh you know tax on the million minus that $320 odd,000 of indexation. So it's maybe $600,000 taxed rather than $500,000 taxed. So there is a difference there, but it's not going to stop people from investing in property. It's not going to stop people from rent vesting.

[00:03:55]It's just going to make it less attractive and it might force some people to put their investments into other areas. A lot of older investors, Amy, were worried about what this budget would mean for them and their investments. How hard have they been hit by these changes?

[00:04:10]>> Well, it's not very hard at all because they're still going to make a profit if they've invested over the long term.

[00:04:17]Housing prices have jumped so much and particularly since co where, you know, over the last 30 years or so, we have seen about a 400% increase in housing prices in Australia. wages have risen about half of that. So, if you got in in the last, you know, 20 years or so, you are still going to be fine. If you have only just got into the housing market, or if you're trying now to get into the housing market, you are going to be carrying a lot more debt for a lot longer and there are less opportunities for you to build wealth around that asset anyway. I mean there was a report in 2021 that found that when baby boomers were in their in their 30s more than 23 owned a home for the same cohort in 2021 uh the 30 year olds it was half half of 30 year olds had managed to buy a home it would be even less now because this report is 5 years old and we've already seen what's happened to housing prices since co so there's no real panic there is going to be a structural change. That means Australians are going to have to maybe rethink the way that they've been told for the last 30 years of how they build wealth. A home is going to go back to being a home, not necessarily the safest bet for an investment.

[00:05:38]>> The whole point of these changes was to address inequality. Have they done that, Joel? Has this leveled the playing field for young investors?

[00:05:48]>> Well, they've made a start, I think.

[00:05:49]Absolutely. I mean, we've broken the housing market for younger people. Um, a big part of the problem, I mean, one of the, you know, data points that came out of last night was that one in three people who've taken advantage of the negative gearing and CGT on investment properties ended up paying less tax than they would have if they'd never bought the property. So, you know, that's not a majority of of those investors, but it's a significant minority who've come out from a tax point of view. I mean what what if we were talking about a multinational corporation that had paid that had made profits uh in in the vicinity of 400% over you know 25 years as propertyy's gone up by and yet they had paid negative tax over that period.

[00:06:30]How would we feel about that? So yeah they've definitely made a dent in the in the issue of inter intergenerational inequity. Um it's been it's been really heavily loaded in favor of not just baby boomers but also Gen X. Gen X. I include myself in this group that's getting um you know, a bit of a correction from this budget. But, you know, we're all very good at lip service when it comes to saying that we want our kids to grow up in a world where they can afford a home. But the only way for that to happen is for for us to take a bit of a hit. And I think that's what they've done here.

[00:07:01]>> Yeah. Yeah, I mean basically the rebalancing here is essentially that first home owners and owner occupiers will have more of a chance to buy a house than, you know, than investors.

[00:07:14]It's been so heavily skewed to investors who have been able to use existing equity that they've been out bidding owner occupiers and first home owners for well over a decade. All these changes do, it's only going to drop the housing price by about 2% in terms of growth. But what it will mean is that when you go to an auction or when you go to put a bid in, you're going to be on more equal footing as an owner occupier uh or a first home buyer than uh if these changes hadn't been put in place.

[00:07:47]And what that means is that sure there may be some investors who decide to sell their renting stock, but those houses do not implode. They don't cease to exist.

[00:07:58]They get bought by owner occupiers and first home owners and maybe somebody else who wants to have some sort of long-term investment. It's not going to cause a massive glut of um houses suddenly applying to the market. It's not going to mean that we're not going to see rentals. Nothing is really going to change except for the you know in the near term if you want to buy a house you've probably got more of a chance to buy one to live in than if you did than you did a couple of months ago.

[00:08:27]>> Okay. So how about new houses? There's a carve out Amy for new houses. If you purchase a new property you can still negatively gear. Is that going to stimulate new builds and more supply given a lot of you know property experts will tell people don't buy new builds because you will pay overs you will over capitalize on the initial purchase. Do you see that carve out stimulating more supply in the market?

[00:08:53]>> I don't think it's going to stimulate that much supply and I think that's by design. I think that it's basically a way of phasing out negatively gearing completely without having to say that you're phasing out negatively gearing.

[00:09:05]We're going to see a drop in that anyway uh as people continue to buy existing builds. But what the government is saying is that if you want to build a portfolio that is going to be reliant on you making a loss and the government subsidizing that loss, then you have to take a risk in contributing to supply in the first place.

[00:09:23]>> One thing I would add to that is that the the definition of new builds is actually broader than I think a lot of us would assume. So if you knock down an existing home and you build two duplexes, that's that's a new build. So that can be negatively geared. And >> could you negatively gear only one of those duplexes given there was already one existing home?

[00:09:43]>> No, you can actually negatively gear both of them because they're both considered, you know, new builds to have added to the housing supply. If you knock down one home and build one home, that doesn't apply. Um, but also it's not just off the plan apartments that we're talking about here. There's even a provision in there for if you buy a new build from a builder who built it within the last 12 months and maybe lived there for 11 months. That also can be negatively geared. So, it is a little bit broader than than it first looks.

[00:10:08]>> A lot of people have been saying to me this morning, this will encourage existing investors uh you know, a lot of them call them the rich boomers and not all boomers, not all boomers are rich, we know that. But the ones who've got multiple investment properties, this will encourage them now to hold on to them for longer.

[00:10:27]What do you make of that? Is this going to uh keep those properties out of the market, Joel, or will people be trying to sell off?

[00:10:37]>> Look, I don't think I think what as a that example I gave before about how you know the new CGT regime all depends on what inflation's running at. I think that the decision they make around when to sell will be largely based around how inflation's running. So, you know, if inflation's very high over the coming 10 years, then their tax will be lower and they'll be encouraged to probably hold on to the property. Um, you know, as if if things stay the same as they are right now, if inflation gets better and comes back down to 2 to 3%, then their tax bill will be will be higher when they sell for that period. So, they'll be encouraged to sell. So, probably largely depends on whether we can get inflation back under control. But um but no, I mean I can't see I can't see that being a massive uh factor in in the decision. We have to remember that any everybody's already negatively gearing a property. They're going to be able to continue to negatively gear that property. They're also going to pay they're going to get a 50% CGT discount right up until July 1, 2027. We're only talking about what happens after that date. And the difference in the tax they pay after that date may not be that big.

[00:11:38]If this is all about housing affordability, Amy, why do the CGT changes also apply to shares?

[00:11:45]>> Because CGT applies to any asset, including shares and and has as has from the beginning. It's had originally >> Well, I mean, well, they would have to, you know, completely redo that part of the tax setting if they were going to to do that. I mean, the capital gains tax discount was originally sold 30 years ago to increase investment and improve productivity by, you know, encouraging people to in invest in companies and corporations and that sort of thing. But then some very clever accountants very quickly worked out that it also applied to housing and that became a way of building wealth in Australia. I mean, go back 25 years and the Commonwealth Bank was running ads telling people how they could get an investment loan, use their existing owner occupied property to get an investment loan. And we created a little class of landlords. But it was originally, at least if you go back and read the documents, designed to uh improve investment in Australia's productivity and corporations as a whole. and people who are wealthy are already enjoying a capital gains tax discount on things like their shares and all the rest of it. Uh and that and that will continue up until the same date as the housing. And then after that, as Joel says, they'll just be paying a little bit more tax on that investment.

[00:13:02]>> And I think that might also hit some younger um investors who are actually investing in ETFs and and shares as a way of saving towards a property. So, it's not as clear-cut as, you know, younger people win, older people lose here. I think a lot of younger renters might lose because rents may go up, for example. But, if you are a first home buyer who's saving for a property and you're not heavily relying on the share market, no question, you've got a better chance of buying. Now, if you are spending a lot of putting a lot of your money into shares and into ETFs and that sort of thing, again, you might actually, you know, see some negative impact from the CGTH the CGT uh changes.

[00:13:39]So, do you think it changes the playbook for people investing in the share market, Joel?

[00:13:43]>> I think it does to some extent. I don't think it'll stop like just as I don't think it'll stop people investing in property. Uh, I think it won't stop people investing in the share market. I just think that in some cases, again, it all depends on inflation, but you probably pay more tax than you would have on the gains you make. So, yeah, you know, sophisticated investors and their advisers will work out how to gain the new system just as they worked out how to gain the old system. But um young people buying up with ETFs, you know, they'll just pay a little bit more, a little bit less tax as a result. Um and you know, I'm I'm an unsophisticated investor. I invest in ETFs and that sort of thing, but I'm not a day trader. I'm not sort of trying to play to win the stock market on a daily basis. It wouldn't really change my behavior, and I don't think it'll change the behavior of a lot of people like me. When we're talking about the winners and the losers, the winners are clearly the financial planners and the accountants who are restructuring everything for everyone as of today. Amy, superation statement, >> timeless statement.

[00:14:39]>> Put it on a billboard. Um, superanuation has been exempt from these changes which at the moment makes it an even more uh attractive asset for the long term. Do you see that changing down the track?

[00:14:53]Could it come uh under fire in terms of these changes or tax changes in the future?

[00:14:59]>> Yeah, there's absolutely going to be more reforms around superanuation. I don't think it'll be this term of parliament. Uh and I think that the government will probably try to do some small tinkering as it heads into the next election as part of a policy platform, but it's not going to do any major structural changes to superanuation because this is a government that likes to make incremental changes and they've just laid out all of their cards, you know, for the first time in about 5 years or so. They're going to want to take a little bit step back and not and they don't want to risk, you know, any accusations that this is a generational war. But we will start to see superanuation changes for exactly the reason that you laid out because it's now a very tra attractive vehicle for people seeking to minimize tax. We've already seen Jim Charas try to make some changes for people who had superanuation accounts over $3 million. He wanted to tax the earnings above that $3 million figure. He was very heavily slapped down. But there's going to be, I think, probably more social capital for him to make some of these changes as more Gen X's and indeed, you know, the last transfer baby boomers move into the superanuation class and the oldest Gen Xer is now 62. They're starting to eye retirement. And that inequity starts to really reveal itself, you know, for the under 45s. They're going to start saying why are they able to keep spending while we are still being hammered as the mortgage class. So you should see more reforms. I just wouldn't expect it in the near future. Okay. Well, while it is the attractive asset that it is, Joel, what could people do today? What steps could they take to maximize their superanuation balances and contributions?

[00:16:42]>> Well, you know, we we all have the ability to make extra concessional contributions. most of us don't um because you know you can't access that money for sometimes decades but I think this will make that uh a more attractive proposition. Also note that SMSFs are um you know self-managed super funds are exempt too and I do wonder whether the rich will start using SMSFs more in the way that they've used trusts and other vehicles which have now been subjected to a minimum 30% uh tax rate whereas that's not the case for SMSF. So, but for for for just regular punters, you know, I think we we should be looking if you can at all put extra into super, you should be doing that anyway because the tax treatment is so favorable. Um, but obviously there's always that tradeoff, you know, especially if you're trying to save to buy your first home. You put it into super, you put it into, you know, savings for a deposit. That's a really tough call. Um, and everyone, you know, has to make that call based on their own circumstances. I think obviously this will tip this will tip the scales slightly more in favor of super than they were before but it still won't be an easy decision.

[00:17:46]>> The reality is in Australia if you own your property if you've paid it off you can enjoy a retirement not a huge one but you can enjoy a retirement on the pension you are able to live. They've had multiple retirement reviews and they have found that and what they're finding with people who haven't been able to take advantage of super conditions either because they came in too late to the workforce or they were out of the workforce for a very long period of time which is something that applied to a lot of uh baby boomers and Gen X who they often had one parent staying at home.

[00:18:19]that owning a home, that having no housing repayments is the key to a a livable retirement in Australia. And I think that we're going to start to see more emphasis on that because we're about to see a group of people who will still have housing costs as they retire go through that system. And that's going to look very different to what we've seen for the last 20 years, which is another reason we're starting to see the government respond to this. It's not all boomers. There's a lot of boomers who are living in poverty. There's a lot of people who've had relationship breakdowns or family changes or life changes. That means that they do not have secure housing. And that's going to become more of an issue as they head out of the workforce than what we've previously seen.

[00:19:06]>> Oh, it's worth mentioning that people living on the pension are exempt from these property tax changes as well, aren't they? Which was a good call.

[00:19:13]Okay. What about all the gas tax talk?

[00:19:15]What happened to that, Amy?

[00:19:17]What happened to that is that uh the government has parked that until after this most recent fuel security crisis.

[00:19:25]Uh but what they've done is they haven't said no. They've said we will look at this once we're through this oil crisis.

[00:19:32]The government is worried that it's going to upset their international relationships and that they won't be able to secure as much fuel as they need to, which is kind of like a little bit like being held hostage by some of these multinational gas companies because it would be the gas companies who pay the tax, not you know, not the customers and and not not Australians. But I think we're going to start seeing more of that, particularly since uh we've seen a lot of cuts in the NDIS. There's nothing for people on welfare. they've had to delay any sort of tax breaks until further than they had wanted to because they're worried about uh inflation and what that's going to mean. And while Jim Charas is talking about the budget being in a better position, Australia's budget has a revenue problem and we have an over reliance on income tax which again is going to become more of an issue as we have an aging population and that's going to put a lot more pressure on younger generations who are a smaller group of income earners having to pay for that aging population. So, this is naturally going to be something that the government is going to have to address.

[00:20:39]It's just whether they get there kicking and screaming or whether, like they have with housing tax, they decide uh to read the tea leaves and maybe give Australians what they want.

[00:20:49]>> When it comes to tax cuts, Joel, um there was $250 offered up at the end of 2028 for working Australians. How much do you think that makes a difference in the lives of the average Australian?

[00:21:03]>> Not a lot. I mean, we do have, you know, a similar sort of size tax cut coming in this year and then again next year as they adjust that bottom tax bracket up slightly. All they're really doing there is trying to sort of to some extent keep up with bracket creep. Um so, you know, to that extent it will help. Uh but no, it's not uh it's not a lot of money and it's a long way off in the future. Uh and and it's not even really keeping keeping uh pacement bracket creep. So, uh, they can be said to be doing something, but it's not going to make a massive difference.

[00:21:32]>> Okay. Politically, on the whole, Amy, we know that the prime minister and the treasurer have broken a big promise from the election in overhauling these property taxes in particular. Do you think they will be forgiven at the ballot box when it comes to the next federal election?

[00:21:50]I I mean first of all I think the whole idea of broken promises is uh partly the media's fault because we ask uh governments or political parties to lock in policies you know at an election and then go basically will you or won't you without considering you know changing circumstances >> the election so that we know what we're signing up for.

[00:22:11]>> Yeah. I mean potentially, but then I think you also should have a government uh that does respond to changing circumstances that shouldn't be locked into a promise that they made you know like two or three or however many elections ago or you know even the last election. Changing circumstances does require responsive parliaments and we should also take that into consideration and we do a lot of rule in rule out at election campaigns without actually knowing what the future is going to look like. I also think though that uh when it comes to things like this, which on the whole is going to make things fairer on balance for people trying to break into the housing market to live in a home, the government will be forgiven for that. Uh I think that these the the broken promises only tend to really stick to a government when it's seen as being something that's unfair or putting an ownorous cost onto people. And given the inequity in Australia's society and you know between generations, I think there's a lot of people who are calling out for the government to do something to make these changes. The best time was 30 years ago. The next best time is now.

[00:23:23]And so I think that they'll probably be forgiven for it.

[00:23:26]>> Amy and Joel, it is a very busy day for both of you and I really appreciate you sharing your time and your insights with myself and also our audience on the payoff today. Thanks so much. Really appreciate it.

[00:23:36]>> Thank you. Thank you both. And don't forget, you can find us on Apple Podcasts, on Spotify. Give us a follow, leave us some comments, tell us what else you want to hear about. And we're on YouTube as well. We'll see you soon.