The 2026–27 Budget is a mixed package for the construction sector. It delivers funding for new transport and health projects, housing-enabling infrastructure, and a much-needed productivity and skills reform agenda.
However, against a softer economic outlook driven by the Middle East conflict, the Budget also includes major tax changes that may weigh on private housing investment.
Looking at the macro-economic picture, the Budget is forecast to remain in deficit over the coming years. The Albanese Government has saved most of the revenue upgrade from higher commodity prices and is relying on substantial longer-term spending restraint.
For construction, the key question is whether planning reforms, skills investments and infrastructure funding can offset weaker feasibility from escalating costs, higher interest rates and growing investor uncertainty.
Infrastructure
New road and rail infrastructure projects
The Budget includes several new transport infrastructure commitments, including:
- $3.8 billion for Suburban Rail Loop East in Victoria
- $812.5 million for the Bruce Highway in Queensland
- $552.0 million for Anketell Road upgrades and Westport Stage 1A and 1B in Western Australia
- $76.4 million for electrification of the Melton rail line in Victoria
- $50.0 million for the Sydney to Canberra rail corridor upgrade.
The Budget also provides $659.6 million over three years for development works on the Newcastle-to-Sydney high-speed rail project and $1.75 billion to the Australian Rail Track Corporation for investment in the national rail freight network.
New health, community and other projects
New projects funded in the Budget include:
- $80 million for an Emergency Department expansion at Fairfield Hospital in New South Wales
- $28 million for a Nursing and Midwifery Academy at Epworth in Victoria
- $781.6 million over four years for further rounds of the Thriving Suburbs and Growing Regions programs.
Cancellations, delays and scope changes
The Australian Government’s 10-year $120 billion Infrastructure Investment Program spending has been pushed back by around $4 billion over the next three years due to uncertainty arising from the Middle East conflict and the delayed availability of key materials. This is a timing shift rather than a cancellation, with funding expected to be ramped up in future years.
The major scope change is to the Inland Rail project. Originally planned to run from Melbourne to Brisbane, the project will now terminate in Parkes. The cancellation returns $4.4 billion in equity to the Budget, with the government reallocating $1.75 billion of the funding to other national rail upgrades.
Housing supply, construction productivity and skills
The Budget contains a productivity package aimed at reducing regulation to boost Australia’s sluggish productivity performance.
A new $2 billion allocation to a Local Infrastructure Fund aims to help fund roads, water, power and sewerage connections for new housing developments. The funding is forecast to support up to 65,000 homes over the decade but will be conditional on states and territories committing to further planning and productivity reforms.
The Budget commits $500 million to implement reforms to the Environment Protection and Biodiversity Conservation (EPBC) Act, which was passed in 2025. This includes $105.9 million over four years to enable simpler, faster environmental approvals by using artificial intelligence and improving access to environmental information and data.
Other construction productivity measures include:
- Providing free access to mandatory Australian standards documents, which could reduce fees for electrical, plumbing and construction firms by up to $1,600 per standard
- Working with states and territories to remove barriers to modern methods of construction (such as national voluntary certification scheme for manufacturers)
- Streamlining commercial planning and zoning, and harmonising building and construction standards.
Skills reforms in the Budget include developing nationally harmonised licensing arrangements for electrical and engineering occupations, and $85 million for faster skills assessments and occupational licensing for migrant trades workers.
Migration reforms, including a revised points test for permanent skilled visas, may ease labour constraints across parts of the construction sector where shortages continue to affect delivery capacity and project costs.
Tax changes
Capital gains tax (CGT) and negative gearing
From 1 July 2027, negative gearing for residential property will be limited to newly built homes, while the 50% capital gains tax (CGT) discount for individuals, trusts and partnerships will be replaced with cost-base indexation, with a 30% minimum tax rate on real capital gains.
The new arrangements will only apply to capital gains that accrue after 1 July 2027. Newly built homes include off-the-plan apartments, townhouses replacing single dwellings, and new dwellings on vacant land.
These policy changes aim to address intergenerational inequity, raise revenue and shift investor activity towards new supply. Under current rules, the Budget states that 83% of investor activity has been in existing housing.
Treasury estimates these changes could result in 75,000 homes being sold by investors to owner-occupiers over the decade, the equivalent to reversing around 10 years of declines in the home ownership rate.
However, lower expected price growth is also likely to weigh on new supply. Treasury estimates dwelling prices will be around 2% lower over the next couple of years, relative to no tax policy change. Overall dwelling supply is projected to be around 35,000 homes lower over the next decade than otherwise would have been the case. In the context of heightened uncertainty created by the Middle East conflict and rising interest rates, there is the potential for even greater price and supply impacts.
The changes are expected to place modest upward pressure on rents, with the Australian Government estimating the impost at less than $2 per week (around 0.3%).
More broadly, the measures may affect other asset classes by shifting investor preference towards income-producing assets rather than those relying on capital growth. While there are currently no carve-outs for entrepreneurs and startups, the government has indicated it will consult further on this issue. The proposed system also introduces additional complexity into the investment landscape.
Other tax changes
Other tax measures may provide modest support for construction businesses managing tighter margins and weaker market conditions. These include:
- A 30% minimum tax on discretionary trusts from 1 July 2028
- A Working Australians Tax Offset of up to $250 from 2027–28
- For companies with turnover up to $1 billion, a permanent two-year loss carry-back allowing eligible firms to receive a refund of tax paid in prior years
- Reform to the Research and Development Tax Incentive
- Making the $20,000 instant asset write-off permanent for businesses with turnover under $10 million
Other relevant policy changes
- A domestic gas reservation policy requiring liquid natural gas exporters to supply the domestic market with an amount equivalent to 20% of exports
- Abolition of 497 nuisance tariffs, including on tyres, air conditioners and bitumen
- Migration reforms, including a revised points test for permanent skilled visas and changes to Working Holiday Maker visas.
Budget and economic outlook
The Budget forecasts an underlying cash deficit of $31.5 billion in 2026-27 (1.0% of GDP), a $2.8 billion improvement compared to December 2025.
The cumulative deficit improves by around $45 billion over the next four years, largely because extra forecast revenue from higher commodity prices has been saved rather than spent. The headline cash deficit, which includes items such as student debt and some infrastructure investments such as Snowy Hydro 2.0, is forecast to be $64 billion in 2026-27, up from $47.9 billion in 2025-26.
Assuming the Middle East conflict ends soon, and the oil price normalises in 2027, Treasury expects real GDP growth to slow to 1.75% in 2026-27, inflation to reach 5% this year and the unemployment rate to rise to 4.5%. But under a scenario of a prolonged Middle East conflict, the potential for the price of oil to hit US$200/barrel, inflation peak at over 7% and unemployment to reach 5%.
Confidence starts with clarity
Federal tax reform, shifting demand and sustained cost pressures are likely to result in a weaker construction cycle. Government-backed infrastructure, energy and enabling works will stimulate some activity, while private residential development faces pressure from weaker feasibility, higher borrowing costs and changing investor behaviour.
Early engagement with a quantity surveyor supports more informed feasibility, procurement and risk management decisions.
RLB provides independent, market-tested cost advice to stress-test feasibility, quantify risk and evaluate procurement and delivery options, ensuring projects remain commercially robust. Through informed, evidence-based insights, RLB enables clients to proceed, adapt or pivot with confidence in complex and evolving market conditions.
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