Labor’s most ambitious budget yet
Treasurer Jim Chalmers handed down Labor’s most ambitious, most consequential budget on Tuesday night. It was a significant moment, laden with major new policy announcements which went beyond tinkering, all aimed squarely at rebalancing the tax take between income derived from labour versus capital.
The McKell Institute is particularly pleased to see major new policies on tax concessions. Negative gearing will be restricted to new builds only, reflecting McKell’s long-standing positions on a supply positive reorientation of this powerful incentive. And the CGT discount will be reformed, going further than McKell’s housing-only approach to capture all asset classes, while retaining preferential treatment for new dwellings.
And there was much more: the establishment of an east coast gas reservation scheme; greater investments in sovereign capability and more. But beyond the big headlines, there is a deeper story to be told across the country.
What Budget 2026/7 Means for States & Territories
Queensland
The Treasurer born and raised in Logan on the outskirts of Brisbane carried the grit, discipline and pragmatic ambition Queenslanders are known for in delivering the most ambitious and reform-driven budget of a generation.
The 2026–27 Federal Budget will deliver record funding of $42.3 billion in Commonwealth funding to Queensland reflecting the scale of investment required to support one of the fastest-growing states.
Queensland projects in this year’s Budget include a new $800 million investment in the Bruce Highway, reflecting the significance of a corridor in addition to the $7.2b announced last year. $149.5m of the city deal signed by Morrison + Palasczuk is being delivered in this budget and $166m to duplicate the Cairns Western Arterial Road drawing rare positive next day budget coverage on the front page of the Cairns Post.
The Queensland Government was unsurprisingly critical of the Budget, citing in part the 50:50 split on future transport infrastructure funding allocations, although with an investment total of $13.5 billion QLD will receive substantially more per person than NSW + Victoria in transport infrastructure funding. The Queensland Government also continues to be vocal about their concerns for the mounting pressures from the ongoing migration from southern states which are not without merit but are known and reflected in the record investment being delivered to Queensland.
There were some disappointments for Queensland with the announcement in the week leading in to the Budget that Inland Rail north of Parkes is effectively culled due to escalating cost pressures however the decision to preserve the future rail corridor at least leaves open the possibility for future governments to revisit the project as rail freight becomes increasingly essential to the Australian economy.
- Sarah Mawhinney, Executive Director, Queensland
New South Wales
The most consequential impacts of the Federal Budget on NSW will undoubtedly be the rebalancing of the tax system. As the epicenter of Australia’s housing crisis, Sydney has become ground zero for both the excesses of speculator-fuelled housing price growth, and the disenfranchisement that is being felt by younger Australians.
For the NSW Government, though, there will be some frustrations. For months, there have been grievances aired that NSW is receiving less support from the Commonwealth for infrastructure projects — certainly less than a per capita allocation might suggest. This was confirmed on budget night. With an infrastructure spend of around $1200 per person, the investment is around half that seen in other states like Queensland.
But while there wasn’t a specific uplift for infrastructure in NSW, many of the headline benefits will flow to Sydneysiders, and high growth centers on the east coast. There is a scaled investment in urgent care clinics, funding allocated towards the Newcastle-Sydney high speed rail dream, and even an investment in making the train line between Sydney and Canberra finally run under four hours.
- Ed Cavanough, CEO
Victoria
Victoria’s Treasurer, and the rest of us wonks living south of Albury, turn straight to BP3 for the GST carve-up on budget night. While the figure rose, Victoria’s share has fallen. But overall, the budget offers a hand to the Allan Government chasing a fourth term at the state election to be held in 200 days.
Melbourne’s Suburban Rail Loop received $3.8bn, bringing the total Commonwealth contribution to $6bn. Victoria also picked up $76.4 million for rail electrification to Melton and $50m for the Western Freeway upgrade, both targeting population growth on Melbourne’s western fringe.
But the biggest gains were in health, largely due to the renewed National Health Reform Agreement, and from extending mental healthcare services so people can easily seek help without a referral. With the “no worse off” guarantee expiring, Victoria faces uncertainty in future GST allocations. This year, the state’s big COVID bill was no longer part of the assessment, while falling coal and iron ore royalties in Queensland and WA increased their claims and squeezed the other states.
While Victoria may feel hard done by, the lower GST amount is a backhanded compliment because it reflects the state’s strong economy and workforce, dense population and diversified revenue base. Arguably, these are the conditions other states are trying hard to build.
- Rebecca Thistleton, Executive Director, Victoria/Tasmania
Tasmania
The budget invested in Tasmania’s major projects and health system, with $240m for urban renewal at in the precinct around the future Macquarie Point Stadium, $65 million for Launceston stadium, and $188 million to redevelop Macquarie Wharf 6.
There was also $361m for Marinus Link, including a commitment to cushion Tasmanian consumers from project costs.
Tasmania is struggling with a shortage of new home and skilled workers. The state will benefit from the new housing infrastructure fund and negative gearing reforms. But otherwise, the state remains reliant on GST allocations, which have increased to reflect increased need and a lack of self-generated productivity.
Longer-term, Tasmania may do well from national programs such as the Remote Jobs and Economic Development Program and free TAFE for technology and clean energy courses.
- Rebecca Thistleton, Executive Director, Victoria/Tasmania
South Australia & Northern Territory
It was once affordable to buy a house and rent in Adelaide. Now, the median weekly rent has surpassed Melbourne’s, hitting $600 a week, and median house prices have followed, pushing past $1 million. The city’s affordability advantage, long a point of distinction, has effectively disappeared.
Changes to negative gearing and capital gains tax won’t be the silver bullet, but reforms that reduce investors competing with first homebuyers on existing stock are a necessary correction and well overdue.
This budget is less about new announcements for South Australia and more about delivery. This is where we see money flowing through on defence, AUKUS, and advanced manufacturing commitments already announced.
The 2026-27 budget provides $863.8 million over four years to continued support for the nuclear-powered submarine program, including the ongoing operation of the Australian Submarine Agency. Both the Federal and State Governments are now aligned on a shared ambition, to take South Australia from a small, service-based economy to the centre of national priorities on industry, defence and sovereign capability.
The Territory has the highest rate of renters in Australia, in part due to its transient population. Criticism is already mounting that changes to negative gearing and capital gains will only push rental prices higher and reduce supply. Yet the reality is that the status quo has not worked. Rental vacancies are almost non-existent, and rents are skyrocketing. Any move that encourages investment in new supply should be welcomed by the Territory.
The reality is it is going to take an absolutely monumental investment and a complete rethink to solve the undersupply and overcrowding issues the Territory has been plagued with for decades. We have not seen this in last night’s budget.
- Hannah MacLeod, Executive Director, SA/NT
Western Australia
The Albanese Government delivered $20.8 billion to WA, with the standout being $12 billion to establish the Henderson Defence Precinct as a world-class naval shipbuilding hub.
The resources sector got what it wanted most: no changes to tax settings, no gas levy, and $500 million to speed up environmental approvals. On hydrogen, more than $1 billion in previously earmarked Federal funding has been withdrawn — largely symbolic given most major projects had already stalled.
WA’s transport allocation is anchored by $552 million for Anketell Road upgrades connecting the future Westport precinct, and $350 million for the Kwinana Freeway — jointly announced pre-budget as a measure to ‘strengthen supply chain resilience’. The West Australian noted the Anketell commitment represents just 6.4% of the Federal Budget’s $8.6 billion road and rail pool. Victoria’s Suburban Rail Loop received 44%. Victoria does have a state election in November, but we’ll leave that there.
Notably, the Federal Budget assumes an iron ore price of US$60 per tonne — well below the current spot price of US$103 and WA’s own assumption of US$85.20. Canberra is being cautious; Perth is backing its industry. The WA resources sector contributed $25 billion in corporate tax receipts in FY25 — around one fifth of the national total. In Canberra, as in Perth, that number carries enormous weight.
- Jess Bukowski, Executive Director, Western Australia
What’s Next
Given the scale of this year’s budget ambition, many measures will require legislation. We expect to see minor changes over the coming months to some commitments, as they wind their way through the upper house.
And while the Federal Budget may be the biggest show in town — but it’s not the only one. Next month, the final state budget will be handed down. McKell will bring its national team together to make sense of it all: our Chief Economist and Executive Directors from every state and territory, breaking down the numbers, the politics, and what each budget means for working people in their corner of the country.
Eight budgets. One conversation. Stay tuned.
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