12 May 2026
12.05.2026
NAB Economics and Markets Research has released its Fiscal Update on the Federal Budget. Key points are outlined below, or find the full report by Chief Economist Sally Auld, here.
Key points
- Despite the energy shock and RBA tightening cycle, the cyclical starting point for the 2026-27 Budget was positive, with above trend GDP growth and a tight labour market. Relative to MYEFO, the deficits have improved by $45bn over the forward estimates, as the government has elected to bank a portion of the improved revenue flows.
- The Budget forecasts that the underlying cash balance is likely to remain in deficit for the at least the next decade. The expected deficit for 2026-27 is $31.5bn. The headline cash balance, which accounts for “off balance sheet” expenditure or investment, is forecast to be $64bn in 2026-27, around 2.1% of GDP.
- Reform, restraint and resilience were the three self-nominated pillars that were used by the Treasurer to frame the budget. Generally speaking, the Budget addresses all of these.
- Reforms were largely as pre-announced. Negative gearing has been removed except for investment in new builds. The CGT regime will move to an indexation framework, with a minimum 30% CGT tax payable on net gains. However, investors in new builds will have the option of choosing the indexation arrangement or the old 50% CGT discount.
- These reforms remove the incentive to deploy capital into low yielding/high debt investments in property. This is a benefit to broader financial stability, but will likely mean a small decline in house prices and near-term upward pressure on rents.
- The government has been relatively restrained on cost of living measures, with the tax offset for working Australians small and not starting until July 2027.
- The government’s economics forecasts are broadly in line with the RBA’s and our own numbers. Growth will slow, inflation will rise and the unemployment rate will drift higher.
- We assess the stance of fiscal policy as neutral for the coming financial year, although this represents a change from expansionary fiscal policy in 2025-26. As such, the change in fiscal settings will better align with the RBA’s monetary policy ambitions.
