Finance Minister Katy Gallagher has acknowledged that the Albanese government's expenditure on achieving net-zero emissions is 'not sustainable', amid growing criticism that government spending is contributing to inflation. Senator Gallagher indicated that the unprecedented levels of climate action investment, amounting to tens of billions of dollars, will not be replicated in the upcoming budget.
'We have invested heavily in this area and the transition is under way. It's gaining pace,' she told The Australian. 'You can actually see that investment paying off, but you wouldn't expect to see what we've done in earlier budgets where we've kind of supercharged the investment. That's not sustainable.'
Gallagher clarified that this does not signal a diminished commitment to the government's ambitious targets of reducing carbon emissions by 43% from 2005 levels by 2030 and 62% by 2035. Budget documents reveal that Labor allocated tens of billions of dollars to climate initiatives during its first term, including an $8 billion injection in November to support the new 2035 emissions target.
Additionally, the government is expected to unveil a $500 million commitment to expedite environmental approvals. Gallagher dismissed concerns that government spending is driving inflation, labelling such accusations as 'political', and asserted that the budget will not add stimulus to the economy.
'The budget we're in now is the same budget, essentially, that saw interest rates being cut last year,' Senator Gallagher stated. 'It's got really political, actually, about the role of the budget in driving inflation, or allegations that it can push inflation. I don't accept that. But I do believe we have a responsible role to play about ensuring that the budget is working alongside monetary policy, and that's the approach we've taken.'
The government is also facing allegations that it may break a key election promise regarding negative gearing and capital gains tax (CGT) reform on Tuesday. It has been widely confirmed that the Albanese government will announce changes to the CGT discount in the budget to address concerns about intergenerational inequity and housing affordability.
Under rules introduced by the Howard government in 1999, investors who hold an asset—such as an investment property or shares—for more than 12 months only pay tax on half the profit when they sell. This policy has been previously described as 'boneheaded' by some critics. Before that, capital gains were indexed to inflation, meaning investors were taxed on real gains rather than receiving an automatic 50% discount.
Treasurer Jim Chalmers is expected to remove the 50% capital gains tax discount for assets held longer than 12 months. Research from Finder.com.au indicates that Australians now need to earn approximately $200,000 per year to comfortably afford a typical house in most capital cities without falling into mortgage stress.
Labor previously proposed reducing the CGT discount to 25% during the 2016 and 2019 elections, but both campaigns resulted in defeat. Those losses prompted Prime Minister Anthony Albanese to rule out changes to CGT after taking office four years ago. Chalmers has conceded that the reversal marks a departure from Labor's previous commitments but insisted the government has always been transparent about reviewing housing tax settings.
'The commitment that I give you and I give the Australian people more broadly, is, if we come to a different view, we will explain why,' Chalmers told Sky News on Sunday. 'But people know there is an appetite in this government for ambitious tax reform. Part of that is recognising that the status quo in housing and tax and the intersection of those two things is effectively broken because there aren't enough homes in our local communities.'
Chalmers described the current system as unfair and unsustainable.
