Deloitte Access Economics' Budget Monitor

30 April 2026: The budget’s luck is running out, with a new report showing that even a conflict-driven boost to the bottom line will not be nearly enough to close the structural deficit, underscoring the urgent need for real reform over short-term measures designed to ease price pain at the petrol pump.

According to the May 2026 edition of Deloitte Access Economics’ biannual Budget Monitor report, the 2025-26 underlying cash deficit is projected to come in at $33.2 billion, a $3.6 billion improvement on what was forecast in the Mid-Year Economic and Fiscal Outlook (MYEFO).

Deloitte Access Economics Partner and report lead author Stephen Smith said: “One of the uncomfortable implications of global conflict is that Australia’s budget position usually comes out a winner. That’s likely to be the case again as a result of the Middle East conflict, but the downside risks are also plentiful.

“The Federal Budget is structurally flawed. The revenue windfalls of recent years – a result of soaring commodity prices and surging inflation – temporarily papered over Australia’s precarious fiscal position. But even another commodity and inflation boost cannot cover up the fiscal cracks.

“Economic developments that deliver sugar hits on the revenue side will jeopardise the budget’s health elsewhere. A sustained oil supply shock could substantially slow demand, while the Reserve Bank of Australia (RBA) may have to hike interest rates further than anticipated. That risk will be more certain of becoming a reality if there is heavy-handed support for households in the budget.

“Elevated inflation will raise the cost of indexed payments and the cost of delivering government services. At the same time, higher interest rates lift the cost of servicing public debt. Even with a relatively disciplined approach to new spending, the increased cost of existing spending is likely to offset a large part of the budget’s revenue windfalls.

“The ‘fast five’ spending areas – defence, the NDIS, aged care, health and interest costs – are all essential, but their growth is outpacing revenue at an unsustainable rate. The Government has announced substantial reforms to finally tackle the pace of NDIS spending growth head on, but it remains to be seen how much of those savings will be used to fund budget sweeteners elsewhere.

“As it stands, the Government has maintained a relatively tight grip on new spending measures in the lead up to the budget. The main response to the cost-of-living crunch has been a reduction in fuel excise, which hits the revenue side of the ledger.

“Time will tell whether the Treasurer can keep spending demands contained in the budget itself, and indeed over coming months, if the economic outlook deteriorates further.

“Despite the challenging economic landscape, this budget must be more than a crisis management exercise. The Government insists it is still working through an ambitious reform agenda, including addressing some much-needed changes to the tax system.

“That would be an overdue development. Australia’s tax system is not equipped to efficiently or equitably raise the revenue needed to fund the country’s growing spending needs. To do nothing is to increasingly rely on younger generations of wage-earning Australians to foot a greater share of the budget.”

Getting negative gearing and capital gains tax (CGT) discount reform right

Reforms reportedly being considered include winding back the CGT discount and limiting the ability to negatively gear residential investment properties. The package revealed in the 2026-27 Budget will be a critical test of whether the Government is prepared to pursue meaningful reform.

Stephen Smith continued: “While tweaking the size of the CGT discount and introducing some limitations on negative gearing won’t solve Australia’s productivity woes, they could, if designed well, help shift the housing market away from investors and serve as a building block for more ambitious, productivity-enhancing reform.

“To this end, the proposed transition must be more ambitious than grandfathering existing assets into the old rules. While grandfathering is politically palatable, it creates a two-tiered asset market, and it severely delays the fiscal and economic benefits of the reform.

“A more potent transition would phase-in the new CGT discount incrementally, over several years, but apply it across the entire tax base. That gives existing investors enough time to adjust their portfolios as they see fit, without abruptly distorting asset markets, and provides a much larger fiscal envelope to fund other needed tax reforms.

“In this edition of Budget Monitor, Deloitte Access Economics has costed a wholesale redesign of the personal income tax system featuring a $35,000 tax-free threshold, a 33% marginal rate on all income up to $300,000 and a 40% marginal rate on all income above $300,000.

“The simplified structure would simultaneously reduce the top marginal tax rate on high earners – who are the most likely to be affected by changes to the CGT discount – and create a consistent marginal tax rate for the vast majority of Australia’s labour force. A higher tax-free threshold would greatly improve incentives for low-income and part-time workers.

“It’s just one idea. But it’s an example of the meaningful economic reform packages that could be funded via a more ambitious transition of property tax settings. Ultimately, the package that gets revealed in the 2026-27 Budget will be a critical test of whether the Government is prepared to pursue meaningful change with the urgency that is needed.

“Grandfather everything, and the budget gets a token revenue stream that arrives too slowly to fund much beyond the next round of short-termism. Phase-in the changes across the entire stock of assets, and the reform looks like something more serious: a genuine contributor to structural budget repair, a cleaner tax base, and a plausible source of funding for more ambitious tax reform.

“It’ll take more political courage, but that’s exactly what Australia’s economic outlook demands.”

Rates of growth in all tables (unless otherwise indicated) are ‘year average percentage changes’ – the percentage change between the year indicated and the prior year. ^Employment, consumer price index and the wage price index are through the year growth to the June quarter. *Unemployment rate and participation rate is the rate for the June quarter. ‘Official forecasts’ refer to projections in the 2025-26 MYEFO. 1Net cash flows from investments in financial assets for policy purposes. Prior to1999-00 these flows were known as ‘net advances’.

Source: Deloitte Access Economics, Commonwealth of Australia 

About Budget Monitor

Budget Monitor is a source of independent projections of the Federal Budget, including detailed estimates of future spending and revenues. Unless otherwise indicated, the official forecasts shown in this issue of Budget Monitor are drawn from the 2025-26 Mid-Year Economic and Fiscal Outlook (MYEFO) released in December 2025. To produce the budget forecasts presented in this report, Deloitte Access Economics has updated the MYEFO figures by incorporating the latest actual Commonwealth Monthly Financial Statements data published by the Department of Finance up to February 2026, the effect of policy decisions announced by the Federal Government up to and including 22 April 2026, and the effect of changes in economic parameters based on Deloitte Access Economics’ latest forecasts, therefore capturing any difference between those forecasts and Treasury’s view of the economic outlook included in MYEFO.