This month saw the release of Australia’s 2026 Federal Budget, framed explicitly around “intergenerational equity”. IF Senior Researcher, Toby Whelton, provides an overview of the Budget and considers the lessons it provides for UK policymakers.
What was in the Budget?
Since Liz Truss’s infamous mini-budget in 2022, Budgets in the UK have been largely anticlimactic affairs. A series of tinkering around the edges, while failing to tackle the fundamental challenges the country faces.
Australia’s 2026 Federal Budget makes a refreshing contrast. It marks one of the most significant shifts in Australian tax policy for decades. The Budget has an explicit aim of improving intergenerational equity and making the economy fairer to younger generations. In the words of Treasurer Jim Chalmers, the Budget’s tax reforms aim to “rebalance a system which is more generous to assets than it is to labour”.
A greater taxation of wealth and unearned income will be achieved through a series of measures:
- Negative gearing scaled back: Property investors will no longer be able to offset losses from most existing properties against their wages, reducing tax incentives for speculative property investment.
- 50% CGT discount removed: Investors will no longer automatically receive a 50% tax discount on profits from selling assets such as property or shares, generally increasing taxes on capital gains. Going forward, capital gains will only receive a discount equal to inflation over the period in which the asset was held.
- Trust tax loopholes tightened: The government is restricting the use of discretionary trusts that are widely used to split income and capital gains across family members in order to reduce tax bills.
The additional revenue raised through these measures will partially be used to reduce the lower income tax rate from 16% to 14% by 2027, alongside a series of tax deductions and offsets available to workers. In effect, the changes increase taxes on wealthy, often older, asset holders, while modestly reducing the burdens for households reliant on earned income.
Why the reforms?
These reforms are long overdue. The ability for property investors to deduct losses on rental properties from their taxable income through negative gearing, while also benefiting from a 50% discount on capital gains tax, created strong incentives to invest in property.
Taken together, these measures placed upward pressure on house prices, which have decoupled from incomes. Since 1999, Australian house prices have risen by 400%. The affordability ratio, median house prices relative to average earnings, has risen from 4x to 8x. Over the same period, homeownership among those aged 25-34 has fallen from 51% to 44%.
Scrapping these tax concessions should help to moderate house prices and reduce young workers’ share of the overall tax burden. It will also place the taxation of wealth and unearned income on a more equal footing with the taxation of earned income.
What can the UK learn from Austrailia?
Due to differences in tax regimes, Australia’s reforms cannot be neatly mapped onto the UK. The closest equivalent policy would be equalising income tax and capital gains. This is not a new idea. IF has long called for this policy, and even Wes Streeting has recently called for a similar approach as part of his potential leadership pitch.
What is truly unique about the Australian Federal Budget is not necessarily the policy details, but rather the explicit framing around intergenerational fairness. “Intergenerational equity” is mentioned eight times throughout the Budget documentation. There are specific references to the pressures created by an ageing population, the increasing proportion of tax revenues derived from taxes on labour, and declining homeownership among younger generations. These trends are used to provide the political justification for the policies introduced.
To a UK observer, the language in the official documentation appears almost alien. British politicians will often gesture towards the hardship faced by younger generations and the need to govern for the future, and commentators may bemoan the unfairness of student loans, high NEET levels, and the housing crisis. But very rarely is this followed to its logical conclusion: that if intergenerational inequality is the product of structural policy choices that advantage one generation over another, it is incumbent on the government to correct that imbalance. This political argument is missing from British politics.
The Australian context
It is important to note that Australia’s reckoning with intergenerational fairness has not emerged by chance. Since 2002, the Treasury has produced an Intergenerational Report at least once every five years. It is a comprehensive and wide-ranging report that examines how economic burdens are distributed across generations, and how long-term trends such as climate change, an ageing population, and government debt will affect future Australians. The 2026 Budget draws directly on analysis from the 2023 Report to justify many of its decisions.
Meanwhile, Australia’s system of compulsory voting means young people are far more likely to vote than their British counterparts, and therefore make up a much larger share of the electorate. This has placed considerable pressure on politicians to actively court younger voters with policies such as student debt forgiveness.
A new political platform
While the UK may not face the same political incentives, Australia could still provide a useful example for British politicians. The dominant critique of Starmer’s government has become its lack of an overarching diagnosis of Britain’s problems and a coherent vision for addressing them. This has encouraged voters to seek out candidates with clearer and more ideologically defined platforms.
So far, the alternatives have largely remained anchored to a traditional left-right divide between greater state intervention and a smaller state. A platform built around intergenerational fairness has the potential to transcend this binary. Thinking about how the state distributes burdens and resources between generations gives a better structural diagnosis of the problems facing Britain. Once accepted, solutions become far clearer.
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