Second term, second budget and permission to act

Labor’s landslide victory in 2025 saw PM Anthony Albanese and Treasurer Jim Chalmers go into their second term with a stronger mandate and a shift away from short-term political survival toward long-term economic and social reform. This mandate has now changed and, with the 12 May budget, has fallen squarely on Jim Chalmers’ shoulders. The question isn’t whether the Treasurer will be ambitious – he has already proven that – it’s whether he has the political nerve for a reformist budget to match the unprecedented and globally unpredictable economic times ahead.

The economic forecast is dour: the Iran War and subsequent strangulation of the Strait of Hormuz has created the “largest supply disruption in the history of the global oil market”; a perfect storm of low productivity, growing inflation, and high unemployment has created problems the RBA alone cannot solve. Add to that a lack of available housing and rising affordability problems, and the conditions are finally right for political capital to be expended on reforms to the capital gains tax discount and negative gearing. These are difficult issues that have cost many a political career, but another opportunity such as the current circumstances may not come again.

The best fiscal reform in Australian history has almost always come during times of crisis. When Keating took the Treasury in 1983, the country was in a mess with double-digit unemployment, high inflation and interest rates, and a deficit 50 per cent greater than expected. It was this crisis that gave him licence to float the dollar, deregulate the banks, and dismantle tariff walls. After the 1990 recession, his “One Nation” package combined new spending with continued microeconomic goals of competition and labour market productivity.

Curtin and Chifley used the wartime emergency and subsequent downturn of the 1940s to build the foundations of Australia’s social safety net. Let’s also not forget Rudd and Swan’s $42 billion stimulus package, which protected Australia from the worst of the GFC and served as a beacon to other struggling nations. On each occasion, we can see how crisis can give politicians the permission they need that ordinary times deny.

Chalmers has spoken plainly about the 2026 federal budget lifting productivity and lowering inflation, and he has also indicated the Iranian conflict has “heightened the need for reform,” with Treasury modelling changes to the CGT discount, negative gearing, trusts, and taxes on electric vehicles. Only recently, the government announced cuts to the NDIS with a plan to slash 160,000 participants and reduce the average plan by $5,000 over the next four years. While framed as sustainability reform, it shows how the times have given Chalmers and the second Albanese ministry the permission to do what is necessary.

All power to the Treasurer: he has made some tough calls and is arriving at this budget with a clear reform agenda. Four budgets in, though, more needs to be done. Without action on CGT and negative gearing, superannuation tax concessions, stage 3 tax cuts, and meaningful housing reform, the budget will remain on life support.

The Iran crisis, along with other global economic setbacks, provides political cover but shouldn’t be a substitute for the tough decisions on reform. The great reforming Treasurers in Australian history — Keating in the wreckage of recession, Swan in the furnace of the GFC — didn’t wait for calm seas. The Iran War has handed Chalmers a rare kind of political permission, and the May budget will demonstrate that we are heading in the right direction.