Thousands of Aussies could lose popular $22 billion tax break in just 10 days

Treasurer Jim Chalmers has declared that restricting government spending will be the hallmark of this year's federal budget in a package aimed at meeting global uncertainty.

He has pledged to deliver an "ambitious" set of national accounts on May 12 in the face of global conflict and rising inflation, while also saying the economy is being held "hostage" by the war in Iran.

In an update today, Chalmers stressed the upcoming budget would be more concentrated on responsible spending than anticipated tax reforms.

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"But what you will see in the budget is, in gross terms, there will be more dollars in savings than dollars in revenue upgrades. There will also be more dollars in savings than dollars in tax reform," he said.

Chalmers was speaking alongside Finance Minister Katy Gallagher, who said the budget will include savings from every government department.

"The budget will include $2.7 billion in savings," she said.

Savings in the defence and NDIS portfolios, and spending cuts on external labour have already been identified, Gallagher said.

"This is essentially extending the existing savings measure we have put in place in previous budgets, and it will also have significant savings from unallocated funding across a number of departments.

"It will also include re-prioritisation within defence … and also an effort around reducing fraud and non-compliance across the NDIS."

Gallagher was speaking as the Australian Financial Review reported today that the public service is facing sweeping job cuts, with thousands of positions to be lost under the budget's spending cuts.

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Three pillars of budget

Australians are set to be hit by major tax changes, including losing access to a popular concession, in this year's federal budget, which is shaping up to be one of the most significant in decades. 

The budget is set to contain three central packages — tax reform, spending savings, and productivity and investment — that are set to address the intergenerational inequity issues younger people are facing.

Here is what you can expect when Chalmers delivers his budget later this month.

Tax reform 

The government has been dancing around exactly what tax reform it will hand down, but two of the measures that are at least on the table are changes to the $22 billion-a-year capital gains tax (CGT) discount and negative gearing.

Critics have blamed the combination of the policies for contributing to the housing crisis, with a Greens-led Senate inquiry earlier this year finding the CGT discount is flawed and benefits investors over first-home buyers.

An Oxfam report earlier this year found nearly half the beneficiaries of the CGT discount were 24,000 of Australia's richest people.

The specific reforms, including whether grandfathering provisions will be included for investors who are using the discount and negative gearing, are still a bit of a mystery.

The government hasn't confirmed the changes, but has repeatedly failed to rule them out when given the chance, with Chalmers and Prime Minister Anthony Albanese instead saying the budget will tackle intergenerational unfairness in the tax system and housing market.

"What we are determined to see is a fairer economy that works for more people, including for younger people," Chalmers said this week.

If reformed, it would be the first time the CGT discount is rolled back since the Howard government raised it to 50 per cent in 1999 and the first time negative gearing is changed since it was temporarily limited by the Hawke/Keating government in 1987. 

In his pre-budget speech in March, Chalmers said the tax reform package would also make the system simpler and sustainable and drive business investment but only "if we can afford to". 

"How much of that we can do in May depends a bit on fiscal considerations, international developments, and also, of course, cabinet deliberations," he said at the time.

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NDIS cuts 

Health Minister Mark Butler announced $15 billion would be cut from the National Disability Insurance Scheme (NDIS) over the next four years to clamp down on ballooning costs and prevent it from becoming "an ATM for shonks, grifters, fraudsters and crooks".

Changes include tighter criteria, standardised and evidence-based assessments, fraud prevention and reduced spending on social and community participation per participant and daily activities.

Initial modelling shows the changes will reduce the number of people on the NDIS from 760,000 to 600,000 by the end of the decade. 

"It costs too much and is growing too fast," Butler said in April.

"We can't afford for the NDIS to continue growing at its current rate."

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Defence boost

Defence will receive an additional $53 billion over the next decade, increasing spending to 3 per cent of Australia's GDP by 2033 under the NATO methodology.

US President Donald Trump has been pressuring Australia and NATO countries to raise their defence spending, complaining that the US does a lot of the heavy lifting.

The funding boost, announced last month by Defence Minister Richard Marles, was partly paid for by the sale of military land and will deliver greater warfare capabilities, systems and communications.

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Cheaper fuel

The federal government halved the fuel excise and removed the Heavy Vehicle Road User Charge from April 1 to June 30 to provide some relief for motorists facing soaring fuel costs, which will be funded in the budget.

The measure was estimated to reduce fuel costs by 26.3 cents per litre and almost $19 on a 65-litre tank.

The Australian Competition and Consumer Commission is monitoring fuel prices across the country to ensure the cost savings are being passed on.

More announcements 

• $1000 instant receipt-free tax deduction for work-related expenses for about 6.2 million workers.
• Reducing the private health insurance rebate for those over 65 to the same level as everyone else.
• New Payday Super rules mandating employers pay superannuation at the same time as salary and wage payments will come into effect from July 1.

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