Treasury’s tough truths: tax reform, housing crisis, and global risks
In this week’s video insight, I unpack the leaked Treasury report warning the Albanese Government that Australia’s budget cannot be sustainably repaired without both raising taxes and cutting spending. The report also casts doubt on the government’s ambitious housing targets, with rising construction costs and surging demand making them increasingly unrealistic. Political support for a ‘Big Australia’ is compounding the strain on housing supply and intensifying the cost of living crisis. Treasury also flagged concerns about the potential replacement of Jerome Powell with a Trump loyalist – an event that could rattle global markets. Lastly, I explore Treasury’s analysis of growing financial risks, including escalating tariff tensions, mounting U.S. and European debt, the end of defence spending holidays, and the broader uncertainty surrounding Trump’s return to the world stage.
Transcript:
Hello, I’m David Buckland and welcome to this week’s video insight.
The leak over the weekend from the Australian Government Treasury in their advice to the incoming ALP Government had the following important messages.
Firstly, the Treasury advised that the Federal Budget cannot be fixed on a sustainable basis without raising taxes and cutting spending. The Treasury favours lower taxes on individual and company income, to increase workforce participation and give workers “a fair go” and modernizing business tax to boost investment.
Treasurer Chalmers plans a roundtable “discussion” in August with tax on the agenda, but it seems an increase in the GST rate from the current 10 per cent, which would proportionally hurt low-income earners, is not being entertained. Instead, his focus is on doubling the earnings tax on Superannuation balances exceeding $3 million, whilst blocking any discussion related to both “unrealized gains” on asset values and indexation of the threshold.
The United Kingdon, for example, has a GST equivalent rate of 20 per cent and an effective death duty on wealth exceeding 375,000 pounds, so in that context Australia is not necessarily in bad shape.
Second, the Government target building of 1.2 homes and apartments by 2029 is “dead in the water”, and a significant shortfall seems likely. With the massive jump in the price of timber, steel, labour and regulation, the housing crisis is likely to continue for the balance of this decade, as demand, mostly from net immigration and natural population growth, continues to exceed supply. Unfortunately, both sides of politics are obsessed with “a Big Australia” and it is difficult for housing, infrastructure, health and education to catch up, placing pressure on most Australians’ quality of life.
Third, the Treasury did some scenario analysis which included a loss of confidence in the US Dollar as the global reserve currency and the loss of independence of the US Federal Reserve. With President Trump continuing to jawbone the US Federal Reserve Chairman, Jerome Powell, into aggressively cutting the US cash rate, this concern is increasing particularly given the likelihood Powell will be replaced by a Trump acolyte by May 2026 (or before, if Trump has his way).
Fourth, the risk associated with financial disruption has increased from tariffs, potential trade wars, increasing US and European government indebtedness, the ending of most countries’ defense holiday, and President Trump’s unpredictability. Increased volatility is seeing both Gold and Bitcoin challenging record highs, and this appears likely to continue.
That’s all I have time for this week. Please continue to follow us on Facebook and X.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
