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2026-27 Federal Budget analysis

The 2026-27 Budget has been framed against a challenging global economic environment. Conflict in the Middle East has pushed up fuel and fertiliser prices, compounding elevated inflation and slowing growth. Further exacerbated by widespread drought conditions and a series of natural disasters in the regions.

Headline inflation is forecast to peak at 5 per cent by mid-2026 before returning to the RBA's 2.5 per cent target band by mid-2027, assuming oil prices stabilise. Economic growth is forecast to slow to 1.75 per cent, down from 2.25 per cent in the prior financial year, with fuel-driven cost pressures expected to flow through to grocery prices in the months ahead.

Key risks to the outlook include a prolonged conflict, supply chain disruption, and subdued consumer spending. Treasury has warned that a severe escalation pushing oil to $200 per barrel could tip Australia into a quarter of negative growth, with inflation rising as high as 7.25 per cent.

The Budget remains in deficit for the foreseeable future, with a return to balance not expected until 2034-35. The 2026-27 deficit is $31.5 billion - slightly better than previously forecast - with marginal improvements projected over the following two years. Gross debt remains on track to exceed $1 trillion.

Key budget outcomes relevant to RFCS NSW clients

Securing Fuel and Gas Supply

The government's centrepiece measure is the already-announced $14.8 billion Strengthening Australia's Fuel Resilience Package which includes:

  • A $3.2 billion Australian Fuel Security Reserve to bring total diesel and jet fuel stocks to 50 days' supply
  • A $7.5 billion Fuel and Fertiliser Security Facility providing loans and storage support - Export Finance Australia has already locked in over 450 million litres of additional diesel
  • $1.1 billion to support domestic production of low-emissions fuels
  • $2.9 billion to more than halve the fuel excise and reduce the heavy vehicle road user charge to zero for three months (no announcement on extension)
  • Reservation of 20 per cent of gas exports for domestic use
  • ATO temporary relief for businesses unable to meet tax obligations due to fuel supply disruption

Strengthening Supply Chains

The Budget includes a range of measures to bolster supply chain resilience:

  • 250,000 tonnes of agricultural urea secured for Australian farmers
  • Supply chain agreements signed with Japan, South Korea, Singapore, Malaysia and Brunei to keep critical goods moving
  • A $55 million pilot program to incentivise shifting freight to rail and sea, improving resilience and fuel efficiency
  • Streamlined biosecurity border processes to speed fertiliser delivery to farms

Tax Measures

Capital Gains Tax: From 1 July 2027, the 50 per cent CGT discount will be replaced with inflation-adjusted indexation, with a minimum tax rate of 30 per cent on realised gains. The change applies to all assets except new homes, where both arrangements will remain available. Gains accrued on existing investments prior to the start date will retain the 50 per cent discount. There is concern these changes may have a significant impact on long-held farming assets and succession planning.

Negative Gearing: Negative gearing on residential property will be limited to new builds from 1 July 2027. Existing investments held as at Budget night (12 May 2026) remain unaffected.

Small Business Tax Relief: Primary production income will be exempt from the new 30 per cent minimum tax on discretionary trusts - a critical protection for trusts used in agriculture for succession planning. 

Two permanent tax measures to also benefit small businesses under financial pressure:

  • A reinstated loss carry-back scheme allowing companies with turnover up to $1 billion to offset recent losses against profits from the prior two years, generating a tax refund or reduced liability from the ATO
  • The $20,000 instant asset write-off to become permanent
  • Startups to access to a new refundable tax offset

Tax Relief for Individuals: 

  • A new Working Australians Tax Offset (WATO) will provide an annual tax offset of up to $250 for workers from the 2027–28 income year
  • From 2026-27, a new instant tax deduction of up to $1000 will simplify work-related expense claims (no receipts required), delivering an average tax saving of $205
  • Additional tax cuts take effect - the 16 per cent tax rate to a taxable income between $18,201 and $45,000 will be reduced to 15 per cent on 1 July, then to 14 per cent in July 2027 

Agriculture, Fisheries and Forestry Portfolio

Total expenses are set to fall 27.5 per cent by 2029-30, largely driven by reduced spending on the Murray-Darling Basin Plan. Funding for cattle, sheep, pig, fishing and horticulture industries, rural assistance, and natural resources development has been reduced, while grains and wool funding is increasing over four years and dairy funding remains steady.

Funding cuts:

  • $104.6 million over five years from 2025–26 across a number of grant programs, including Pest and Disease Preparedness and Response, Wine Tourism and Cellar Door, Agriculture and Land Sectors - Low Emissions Future, Accelerated Adoption of Wood Processing Innovation, Support for Regional Trade Events, Empowering Australia's seaweed farming program, and other trade-related grants
  • $52 million over four years from 2026-27 for the Future Drought Fund
  • $35 million over two years from 2028-29 for the agriculture stream of the Natural Heritage Trust

Funding allocated:

  • $8.9 million in 2026-27 for the Australian Carbon Credit Unit scheme that allows farmers to earn credits by reducing emissions or storing carbon in vegetation or soil – the funding will boost method development and strengthen scheme integrity
  • A further $1 billion in concessional loans through the Regional Investment Corporation beyond 2026, bringing the total to $3.78 billion

Trade and Export Support

  • The government will scrap a further 497 'nuisance tariffs' from 1 July 2026, with savings expected to flow through to lower costs on imported agricultural goods
  • $23.8 million over four years to sustain agricultural trade export functions and market access support
  • $45.1 million over four years towards specialised international leadership and standard-setting activities that underpin trade
  • $7.6 million over four years to expand the Australian Trusted Trader program, reducing border red tape and including the rollout of a new Approved Exporter Scheme allowing eligible businesses to self-certify certain export documentation

APVMA and Biosecurity

  • The Australian Pesticides and Veterinary Medicines Authority (APVMA) receives $8.7 million to ease approval bottlenecks for agricultural chemicals and veterinary medicines, improving grower access to newer crop protection and livestock treatment products
  • The CSIRO and Australian Centre for Disease Preparedness receives $387 million over four years to bolster research capabilities and preparedness against major animal disease threats, including avian influenza and other exotic livestock diseases
  • Biosecurity system funding for Enhancing Australia's Biosecurity System - Priority Pest and Disease Planning and Response – this year cut from $3,054 million to $2,834 million before increasing over four years to $3.2 billion

Regional Connectivity

  • There’s no renewed funding for the Better Connectivity Plan for Regional and Rural Australia, which supports the Regional Connectivity Program, the On Farm Connectivity Program, the Mobile Black Spots Program, an independent mobile coverage audit, and the Regional Tech Hub

Infrastructure

  • The federal government will stop the Melbourne-to-Brisbane Inland Rail project at Parkes after independent analysis found costs in excess of $45 billion and delays in completion.
  • To partially offset this, $1.75 billion has been committed to upgrading the existing ARTC freight network.

Local Government

The Budget delivers substantial support for local government, including $3.6 billion in untied grants:

  • $2.9 billion brought forward to ease immediate cost pressures
  • $781.6 million for community infrastructure through the Growing Regions and Thriving Suburbs capital works programs
  • $30.1 million to support a tenth round of the Stronger Communities Program for small-scale community projects in the regions
  • $2 billion to help councils build infrastructure to unlock up to 65,000 new homes, with $500 million dedicated to regional areas
  • $4.4 billion committed to Roads to Recovery over five years, $150 million for Black Spot projects and around $200 million annually for safer local roads

Migration

  • $85.2 million to accelerate skills assessments for migrant trades workers and fast-track occupational licensing, enabling faster workforce entry.
  • The permanent migration points test will also be reformed to prioritise better-educated, higher-skilled and younger migrants
  • Working Holiday Maker program reforms were announced but contain limited detail on how changes will affect the seasonal workers that the ag sector relies on 

Disaster Relief

  • The Budget acknowledges that the cost of natural disaster recovery is expected to grow, committing $2.5 billion over five years to fund recovery efforts.
  • An additional $6 million towards developing a national high-speed emergency messaging service, AusAlert, to communicate with Australians during disasters.
  • The government is also bolstering the national aerial firefighting fleet.

Health and Social Measures

  • The Medicare levy low-income thresholds will increase to provide tax relief for singles, families, seniors and pensioners
  • $5.9 billion to make medicines more affordable through new and amended PBS listings for cystic fibrosis, chronic kidney disease, various cancers and more
  • The Australian Government's Paid Parental Leave Scheme expanded to six months from 1 July 2026
  • $3.7 billion to deliver more aged care beds, more home care packages, and improved care for older Australians