Albanese gambles on support from younger Australians as he dramatically shifts wealth

Chalmers raised the alarm about the prospect of more severe pain from the Iran war oil shock, which has forced the government to spend $15 billion on fuel and other resilience measures.

In his push to ease economic anxiety and quell populist rage, Chalmers outlined what he described as the most ambitious budget in a generation, pledging to slow house price growth by 2 per cent to help an additional 75,000 Australians buy their first homes.

He refused to apologise for not signalling the tax hikes before the last election, insisting that “anyone who wanted to invest in a negatively geared property can still invest in a new house”.

He told this masthead: “The idea that aspiration will be limited to people already doing well – we reject that.”

“I acknowledge this is a controversial change,” he later told reporters. “My view is that when a government comes to a different view, and when it’s for … justifiable reasons, the onus is on government to explain.”

It would be “easy but wrong” to maintain the status quo, he said, predicting that the Coalition would “try and make it about [the broken promise] rather than the substance of the issue”.

Negative gearing, which allows people to deduct rental losses from their tax, will be available only to those who invest in newly built homes.

The 50 per cent capital gains tax discount will revert to its 20th-century model of taxing only real, inflation-adjusted boosts to asset prices. A minimum 30 per cent tax floor will be introduced to ensure people do not defer the realisation of gains until retirement.

The distribution of trusts, used for income splitting and familial tax planning, will be subject to a minimum 30 per cent tax on 840,000 discretionary trusts. Wills and farmers’ trusts will be exempt, in a sign that tackling these financial arrangements will be controversial.

The reforms set up a high-stakes political fight with Opposition Leader Angus Taylor, who has already indicated he would reject any tax rises.

Labor will dare the opposition to vote against the tax offset and is almost certain to secure the Greens’ support for targeting investors. The Coalition will be forced to decide whether it would reverse the changes should it win the next election.

Chalmers dangled the prospect of bigger tax cuts closer to the election as he forecast deficits in the next four years, with an unlikely return to surplus a decade away.

The Working Australians Tax Offset, available to all people who earn a wage, will not stop the overall tax take from rising to just under the record levels seen during the Howard-era mining boom. This will combine with continued elevated rates of spending to lock in a high-tax-and-spend economy.

Economists have long argued that the combination of a capital gains discount and negative gearing, now reserved for new builds, has cut young people out of the housing market, fuelling social dislocation.

The government believes that the growing cohort of younger and middle-aged voters priced out of the market will endorse scrapping tax loopholes that have taken on symbolic status.

Its forecasts suggest the rate of home ownership will grow by 1 percentage point over the decade, from 66 to 67 per cent of adults.

Chalmers predicted the housing tax changes would not lower the price of houses but could slow the rate of growth in house prices by 2 per cent over time, the equivalent of $19,000 for the average house.

The budget also estimates that slowing house price growth will reduce house supply by 35,000, but that will be counteracted by other measures to drive up supply.

The treasurer’s plan to bring the taxation on assets into line with income taxes has the hallmarks of Bill Shorten’s failed 2019 campaign against the “top end of town”, although Labor argues that its changes will be a social balm, not ammunition for class warfare.

“It’s out of whack,” Chalmers said of the tax treatment of labour and income, echoing influential left-leaning economists such as Thomas Piketty.

The tax package will rake in $77 billion over the next 10 years, according to Treasury forecasts. However, this figure accounts for the revenue taken out by the new income offset, which is estimated to cost the government about $25 billion over that time. This means the revenue boost from ending concessions will be about $100 billion.

Labor’s gamble on improving the housing market rests on rosy government forecasts of 4 per cent boosts to supply that counter the Reserve Bank’s view that home building will actually go backwards. At the same time, the budget reveals that Labor will miss its targets on net overseas migration by about 35,000, putting more strain on the housing sector.

Albanese’s high-stakes gamble that he can break a pledge he repeated several times in the election campaign reflects a confidence within Labor about the level of support for addressing housing affordability.

This reversal differs from the government’s previous U-turn on rejigging Scott Morrison’s stage 3 tax cuts. The stage 3 changes gave all Australians a tax cut, whereas this reform compels millions of investors and trust holders to pay more tax.

Chalmers promised that businesses would receive $3.5 billion worth of tax relief, through loss carry-back provisions and a permanent instant asset write-off, to help drive productivity in what he claimed was one of the most ambitious growth agendas in recent decades.

Shadow treasurer Tim Wilson signalled a long campaign on Labor’s broken promise. He also criticised Labor for grandfathering the changes to negative gearing, which the Grattan Institute has said would exacerbate inequality by keeping the arrangements in place for existing investors.

“This budget is setting Australia up for failure,” Wilson said. “It is focused on how it raids the future aspirations, hopes and dreams of young Australians.”

Independent economist Chris Richardson said that tightening up tax concessions was a significant structural change to the budget.

However, he also said that long-term forecasts showed soaring taxes that would only be offset if the difficult NDIS overhaul were fully realised.

“There is good budget repair in here, but it does rely a lot on extra taxes,” Richardson said, adding that the government’s tax offset and existing “top-up” tax cuts were relatively small.

Chalmers noted that the higher tax take over time opened the door to bigger tax cuts closer to the election.

Richardson said: “To the extent there is spending restraint, it may be politically hard to achieve in contested area such as the NDIS.”

“The tax changes are long overdue, but the problem is the many things that still haven’t been done.