Discussion around tax reform is increasing ahead of the 2026/27 Federal Budget. Attention has already been on tax reform however, current economic conditions are expected to intensify pressure for more comprehensive changes.
On 13 March Federal member for Wentworth, Allegra Spender, released a Personal Tax White Paper, following an earlier paper issued in November 2024. The White Paper proposes “budget-neutral” reforms aimed at rebalancing how different types of income (wages, investments, and capital gains) are taxed.
Key measures outlined in the paper include:
- Reducing the bottom marginal tax rate to 13% and lowering other marginal rates by 2.5%.
- Reducing the capital gains tax (CGT) discount from 50% to 30% for future gains.
- Applying a flat 27.5% tax rate to investment income from the first dollar.
- Limiting the deductibility of investment losses to offset only against investment gains.
- Aligning superannuation earnings tax thresholds more closely with personal income tax thresholds.
These proposals are intended to fund personal income tax reductions while addressing differences in tax treatment across income types.
Treasurer Jim Chalmers has confirmed that tax reform will form part of the upcoming Federal Budget. However, he has indicated that no final decisions have been made on specific measures, including whether changes to the CGT discount will be included.
The Treasurer noted that a range of policy options are still under consideration and will be assessed in the lead-up to the Budget. He also highlighted that current global economic uncertainty, particularly impacts associated with the Iran conflict and energy market disruption, may influence both the timing and content of final policy decisions.
In addition, broader economic factors such as supply chain disruption, energy prices, and inflation are contributing to a more uncertain budget environment, which may affect the scope and structure of any proposed reforms. Further announcements are expected as part of the ongoing tax reform discussion, including consideration of indirect taxes such as GST.
Important: These proposals and discussions are not law and may change significantly before any legislation is introduced or passed. We will continue to monitor developments and will advise clients if and when any relevant tax law changes occur.
The Federal Budget will be handed down on the evening of Tuesday 12 May. As always, Armada will be publishing our Federal Budget Summary following this.