Budget 2026 departs from the shape of recent packages in important respects. It is a budget determined by the electoral cycle, as was last year’s, when the imminent general election led to a significant giveaway to households. This year looks very different.
There were important strategic decisions on both spending and taxation. They tell us quite a bit about the Coalition’s priorities and also about the challenges it faces to meet some of its promises. The budget showed that it will be difficult to both increase State investment and deliver improved services, even with spending rising at around 6.5 per cent. Some of the Government’s promises, in areas like childcare, for example, risk going by the board. Serious work is needed on getting better value for the cash that is being committed and improving delivery.
On both spending and tax, the priority of trying to address the housing crisis was obvious – and particularly the need to boost apartment building. Massive State resources are now being deployed here and delivery for the Coalition is politically essential. For this to happen, planning changes and infrastructure improvements will also be needed. Again, it is about delivery.
Caught by its previous commitment on the issue, the Coalition also went ahead and reduced the VAT rate on food services, in a bid to save jobs. Together with the construction and business measures, this left no room for a personal tax package. While there was no case for a big cut in personal tax given the strength of the economy, not indexing bands and credits will lead to a real increase in the tax burden on households .
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Hiking the income tax burden to help fund supports for business will be politically controversial and is not a viable strategy for the years ahead.
As has been the case in recent years, the vast bulk of additional resources went on spending. The move to end once-off payments for households is welcome and necessary , if politically costly. But the Coalition has work to do to deliver the improved permanent supports and better public services promised instead. And while better supports for families with children were welcome, many of the measures aimed at the less well-off were underwhelming.
The budget is the first step in moving back from the enormous packages fuelled by corporate tax buoyancy during the Covid-19 and cost-of-living crises. It is essential that this process takes place and that the vast overspending that has become customary ends. Spending is, according to the Fiscal Council, set to rise by 11 per cent this year. This is simply unsustainable.
Better control needs to be married with a credible medium-term budget strategy and guidelines for spending. The public finances face exposures and challenges over the next few years. They need to be set out clearly and planned for.
