Budget 2026 – Economic and Fiscal Implications

They say never make the same mistake twice – Labor’s main learning from the 2019 election failure appears to be it’s better to ask for forgiveness than permission. In this year’s Federal Budget, the Treasurer has recycled the key policies from the Shorten years (ex. Franking Credits) and ignited the fuse on generational warfare. It is a calculated political gamble from a government that is banking on appealing to a growing cohort of disillusioned younger voters and hoping that the rest of the electorate will not have long memories come the next federal election, which is not until 2028.

• Higher commodity prices and wage inflation has delivered around $100bn of additional receipts over the forward estimates; approximately half of this windfall is returned as additional spending, with the rest to reduce the deficit by $44bn.

• Most savings from the budget are related to the NDIS, with spending growth projected to fall from 10% to 2%; as evidenced by previous attempts to rein in NDIS spending, this projection should be taken with a grain of salt.

• More than nine out of ten dollars in budget repair over the next decade comes from higher receipts rather than lower spending.

• Changes to CGT taxation, negative gearing and super taxes deliver little budget repair in the short term, as these will be grandfathered or not implemented until 2027, or 2028 for changes to trust taxation.

• Gross debt to exceed $1 trillion in 2026 and interest payments to reach $31.7bn per annum in 2030.

What this means for investors and households is a larger and more persistent role for government in the economy. Spending is expected to average around 26.5% of GDP over the decade, well above the old informal benchmark of circa 24% that was once viewed as necessary for budget repair. At the same time, taxes on capital are rising, bracket creep remains embedded in the income tax system, and total receipts continue to trend higher. Even if the budget eventually returns to balance, it is likely to do so through a higher overall tax burden and greater redistribution rather than a smaller or more disciplined public sector. 

The risk is that this fiscal stance makes the RBA’s task harder. The budget relies heavily on restraining NDIS spending growth, despite a poor track record of governments achieving this in practice. If those savings fail to materialise, deficits will be larger than forecast and fiscal policy will remain more stimulatory than intended. In an economy already dealing with sticky inflation, that increases the chance that interest rates stay higher for longer.  

The forecast mix of growth also tells an important story: real GDP growth is forecast to fall to 1.75% from 2.25% in FY26, reflecting the dampening effects of oil prices and higher interest rates. The fall sees growth in the public sector overtake private demand and points to a private economy that is struggling to generate momentum without government support. 

As partners in your investment journey, we monitor, examine, and navigate change. The Federal Budget is one such factor in our highly considered investment strategy and wealth management process.

This article is one part of our 2026 Budget series. To read more of our Budget commentary, click the links below:

• Federal Budget 2026-27 Summary 

• Individuals and Families

• Small and Medium Business

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