in brief
- The government has had to rethink its budget plans amid ongoing conflict in the Middle East.
- The treasurer has announced reforms to the NDIS and tax, but was elusive on other topics.
Treasurer Jim Chalmers has given a glimpse into some of the big cuts and reforms to come in the federal government's May budget.
He described the budget as ambitious but acknowledged it would be leaner than originally planned due to the economic shock from the war in the Middle East.
"The savings package won't be exactly the same as what we would have been contemplating over the summer, but it will be a substantial savings package," he said.
He said the ongoing conflict — and not knowing how much longer it could last — has led to an "extraordinary amount of volatility".
Oil prices
One way the government has already sought to ease cost-of-living pressures is by temporarily reducing the fuel excise, lowering the cost of petrol at the bowser by 52 cents per litre.
Global oil prices surged by up to 7.9 per cent on Monday as the prospects of a US-Iran peace agreement to restore access through the Strait of Hormuz fell into disarray over the weekend.
Two major considerations for the government are inflation and growth, Chalmers said, creating a balance act impacted by "how long the war continues, how long it takes to reopen the Strait in an enduring way, and how long it takes for the global economy to get back to something which looks a bit a little bit more like normal".
Chalmers said the reduction in the fuel excise will cost the federal budget around $2.5 billion, an expense that could increase if the excise cut is extended.
Despite the fiscal loss, he said the government is determined to find savings, with the biggest change to come to the National Disability Insurance Scheme (NDIS).
NDIS, other spending
Chalmers said the government’s planned cuts to the NDIS were "easily the most important part of the savings package that we will present on budget night".
It's unclear what this restructure will look to achieve.
A key initiative, called Thriving Kids, is already taking shape; however, not all states have agreed to participate.
Thriving Kids will replace the NDIS for children under nine with "mild to moderate" developmental delays and autism, with full rollout anticipated in early 2028.
Chalmers said that the NDIS, which now costs the country more than $50 billion each year, is "growing too fast" to remain affordable.
Another major expense already announced ahead of the budget is the allocation of funding for defence.
The government has said that defence spending will rise to 3 per cent of GDP by 2033, taking the nation's military budget to a historic high.
Tax reforms
Chalmers also announced a new tax reduction policy and said Labor is considering options like reform to capital gains tax to address "intergenerational unfairness".
The treasurer said draft legislation would be released on Monday, allowing Australians to make $1,000 instant tax deductions, saving workers on average $205 come tax time next year.
However, Chalmers would not confirm whether the government would be reforming housing policies, namely, the capital gains tax
The tax is levied on the profit made when selling certain assets and can be reduced by up to 50 per cent, which some critics say benefits established investors over young first-time buyers.
When asked about potential reform to this system, Chalmers said no "decisions on those policies" have been made.
"There’s more work to do on our options for tax reform in this budget," he said.
"We have been really up front for some time now in saying that we do think that there is intergenerational unfairness in the tax system and in the housing market."
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