Interview with Sally Sara, RN Breakfast, ABC Radio

Subjects: 2026 Budget, private health insurance, tax changes, productivity Sally Sara: The federal Treasurer, Jim Chalmers delivered his fifth Budget last night, calling it ‘the most important and ambitious budget in decades,’ choosing what he described as the hard road of reform amid the global oil crisis sparked by the war in Iran. The Treasurer unveiled sweeping changes to negative gearing and the capital gains tax discount, breaking a promise made at last year’s federal election.

The Treasurer, Jim Chalmers joins me now. Treasurer, welcome back to Breakfast. Jim Chalmers: Thanks for having me back on, Sally.

The former Labor Opposition Leader, Bill Shorten, found out the hard way that there are political risks to making change to negative gearing and capital gains tax. Why are you confident that Australian voters will be with you? Well, of course there are.

These changes are contentious. There’s no use pretending otherwise. But it’s the right thing to do.

The easiest thing that we could have done from a political point of view would be to see these challenges in the housing market, particularly for young people, and to see the issues in the tax system and to leave everything exactly as it was. We didn’t think that was an acceptable outcome. Too many young people are being locked out of the housing market and so we’ve taken these difficult decisions to try and address that.

Treasurer, we’re getting lots of questions and comments through on our text line this morning. One says, ‘How is it equitable for wealthy baby boomers to retain capital gains and negative gearing benefits while lower‑income baby boomers may have to give up their health insurance?’ Well, a couple of things about that. First of all, when it comes to changes in the property market, we think we found the best way to fix these arrangements so that they are fairer, so they level the playing field.

On the private health insurance change, that was announced a few weeks ago by the Health Minister and what that’s all about is funding the aged care system. Obviously, as our population ages there’s more pressure on aged care. The very substantial new package of support in aged care is funded partly by those changes to private health.

The private health insurance change is really just about equalising the incentives for people over 65 – people under 65. There was no good reason to have those extra incentives for older Australians in there. There’s already incentives to take up private health insurance, particularly as you’re more and more reliant on the health system.

That’s why that sensible change was made, but primarily to fund the big aged care package. Why was it not means‑tested? Which?

The PHI change? The cut to private health rebates for over 65? Well, we were changing the situation put in place by I think it was the Howard government.

It’s not really a question of means testing, it was a question of there being additional incentives for older Australians to pick up that private health insurance and what we’ve done is we’ve equalised it to fund the aged care package. You’ve introduced an income tax offset which is just for wages and salaries, not for investment income. That’s a fairly new distinction in the Australian tax system.

Is it something you see yourself building on in future budgets? Well, the short answer is yes Sally, and well spotted because one of the most important things that we did last night with these broad and ambitious tax reforms is to begin to better align the tax treatment of people who work for a living with people who earn their living in other legitimate ways.

One of the issues in the tax system is that it’s become out of whack. And so that new Working Australians Tax Offset, which as you rightly point out is directed only at people who work, that has created a distinction. It’s effectively lifted the tax‑free threshold for workers, but not for others.

That does give us the architecture, I think in the future when successive governments can afford to return more bracket creep, it’s another way that we can do that. You’ve also moved to a 30 per cent minimum tax for capital gains and a 30 per cent minimum for trusts. Most income taxpayers pay 30 per cent as well, but the top rate is still at 45 per cent.

Is there a case to bring that closer to 30 per cent as well? No, that’s not what we’re proposing here. The 30 per cent minimum in capital gains and in trusts is about more closely aligning it with the marginal rate that most Australians pay.

And 30 per cent to us seems to strike the right balance between a system right now where trusts can be used largely to avoid paying tax, and in the capital gains system where people might sell an asset when they wait until they’ve got very low income because it’s taxed at marginal rates. So all of this is related to the question you asked me before that, which is about better aligning the tax treatment of people who work and people who earn their income in other legitimate and understandable ways.

That’s really one of the big motivations behind these reforms. That motivation plus making it easier for people, especially young people, to get a toehold in the housing market. Another question from one of our listeners, ‘please ask the Treasurer to clarify whether grandfathered properties will also have to pay a minimum 30 per cent capital gains tax as of 1st of July 2028?’ No, you can choose.

The transitional arrangements for existing properties will continue to be treated until 1 July 27 in the usual way. For new builds, I think the question is about new builds but I might be wrong. If it’s about new builds, then people can choose between the existing 50 per cent or the indexation model.

If it’s about the tax treatment of existing homes, then what happens on the 1st of July 2027 is they get the old 50 per cent discount until then and from then they get indexation. Another question says, ‘I’m a boomer and I support these budget measures. My question to the Treasurer is why not limit the number of properties that people can use negative gearing while grandfathering?’ We did look at that.

That was one of the options that we examined, whether a property limit was a better way to go about it. But what we wanted to do instead in limiting some of these generous tax arrangements was to make sure that where people were negatively gearing, they were making a contribution to housing supply. And so the model we settled on was to phase it out for existing properties, but to continue to allow people to negatively gear a new property so that they’re making a contribution to housing supply.

Treasurer, the Budget includes a productivity package but the Treasury says the long‑term productivity growth assumption remains at 1.2 per cent. Does that mean that you’ve failed to come up with changes that will lift Australia’s productivity in the long run? Not at all.

The productivity package in the Budget will cut compliance costs for business by more than $10 billion a year. Just the national competition policy elements of it will lift GDP by $13 billion a year. So, it’s a very substantial productivity package.

What the Treasury assumes in the long run projections for productivity, it reflects the fact that for decades now in our economy productivity growth has underperformed. In this Budget, we make a very, very serious attempt, broad and ambitious productivity package to try and turn that around. We had some good numbers on productivity or relatively good numbers on productivity last year, higher than the 20‑year average, but not enough to deliver higher wages and living standards that we all want to see in our economy.

The productivity package is very broad, very substantial and will shift the needle on productivity over the medium term. The Treasury’s forecast for productivity growth just reflects the fact that we’ve been underperforming for some decades on productivity growth. Jim Chalmers, thank you very much for joining me this morning.

Appreciate it Sally. All the best.