Some silver lining for the Budget amongst doom and gloom

THE Federal Budget delivered a credible path back to surplus, supported by spending restraint and significant tax changes, according to Commonwealth Bank chief economist Luke Yeaman.

“The long‑term budget position does lift as a result of this Budget,” Yeaman said, pointing to an improvement in the underlying cash balance and a sharp decline in projected gross debt over the decade ahead.

But Yeaman said the Budget also represented “something of a missed opportunity” in helping the Reserve Bank of Australia curb inflation.

While it hadn’t materially altered the inflation outlook, he described the overall stance as “broadly neutral to mildly expansionary”.

“When the RBA is sitting down looking at their next set of forecasts, we don’t think the budget will be playing a big role,” he said, noting that the government had “actively put money into the economy” during a period when inflation pressures were expected to be most acute.

Despite this, Yeaman said CommBank hasn’t changed its view on interest rates, with the RBA expected to keep the official cash rate on hold for some time.

One of the most significant policy shifts in the Budget was the overhaul of tax concessions for property investors, with negative gearing to be scrapped for established housing from July 2027 and the capital gains tax discount replaced with indexation.

Yeaman said removing negative gearing would lift the upfront cost of property investment and weigh on investor demand.

“When you remove the option of negatively gearing for an investor … this represents an upfront increase in the cost of servicing that investment,” he said.

CommBank modelling suggested national house prices could fall by around three per cent over the next few years, with potentially stronger effects in investor-heavy segments of the market.

CommBank head of market strategy and rates research Adam Donaldson said changes to capital gains tax were also likely to reshape behaviour across broader financial markets.

“The structure of the Australian tax system has typically favoured assets that grow quickly or have those capital gains,” he added.

“What this change is doing is effectively starting to level that playing field,” he said, noting it could influence how investors assess risk and allocate capital across asset classes.

While expectations for the Budget had been high, Donaldson said the improvement in Australia’s long-term fiscal position was meaningful for bond markets and the nation’s AAA credit rating.

“We think it certainly helps to shore up the outlook for the credit rating,” he said.

He pointed to lower projected government bond issuance and a reduced peak in the debt-to-GDP ratio compared with earlier forecasts.

“That long-term system sustainabilit is a really good one,” he said.

Donaldson said Australia stood out against a backdrop of fiscal strain and political uncertainty in other advanced economies.

This fiscal position, he said, was underpinning demand for Australian‑dollar assets and reinforcing the country’s appeal to long‑term investors.

“The Budget has helped cement Australia as a very popular investment destination because of that,” he said.