How this Budget can make a difference

11 May 2026 | Danielle Wood

Strange as it may sound, I’ve always loved budget nights. Watching the big announcements, poring over the parameter estimates, seeing how the government frames its narrative for a stronger Australia. It’s Christmas for economists.

I am anticipating next Tuesday’s budget particularly keenly, as the Treasurer has flagged a “productivity package”, alongside tax and spending reforms, to improve the country’s long-term prosperity and budget position. 

It’s action that our economy sorely needs. It’s well known that Australia’s productivity, and therefore our living standards, have stagnated. Australia’s labour productivity growth averaged 0.4 per cent over the last decade, the lowest in 60 years. That has put the brakes on income growth – real wages hardly grew at all in the 2010s. Our flatlining living standards make it harder for young people to get ahead, for governments to provide the services we expect and for our economy to withstand the shocks the world is increasingly throwing at us. 

Indeed, if we could boost productivity growth to its historic average, we’d all be at least $14,000 a year better off by 2035. 

It has been pleasing to see the treasurer say that current challenges with fuel supplies and inflation are not going to derail the budget’s focus on longer-term prosperity. A strong, competitive economy is the ultimate source of economic resilience.

To make real progress, the productivity package will need more than one gift inside. Productivity is a game of inches, and the government will need to embrace reforms in a range of areas. 

First, though, to the reforms that have drawn the most attention in the lead-up to Tuesday’s big event. A degree of course correction is clearly needed for housing policy. For decades, we’ve failed to build enough housing where people want to live, sending prices through the roof and pushing young people out of the major cities. It’s a crucial issue of intergenerational fairness – and it’s become a major a productivity issue, as some of our most skilled and dynamic workers are locked out of well paid, high productivity city jobs. 

The much-anticipated changes on negative gearing and the capital gains tax discount could modestly improve affordability for home buyers, but the government is rightly focusing on supporting new housing supply as its main response. 

Since the states hold most of the big levers around planning and approvals, the Commonwealth has sought again to leverage the power of financial incentives – setting targets for new housing supply through the Housing Accord – and promising to pay states that meet them. 

Putting money on the table to incentivise reform was the right idea, but the policy should not have tied payments to delivery of a certain number of houses. Most states are not on track to meet their targets for reasons well outside their control. To take one example, recent estimates from the National Housing Supply and Affordability Council suggest the turmoil in the Middle East, if it drags on, could reduce the number of houses built in coming years by 33,000. It’s hardly fair on the state premiers that their payments can be pushed off course by the actions of the US president. 

The budget could improve the targets by paying the states instead for the reforms they actually deliver. States should be paid for changes that take them towards best practice planning systems that support greater density, and streamline the approvals processes that significantly slow the process of building homes. This could be done by repurposing existing funds from the Housing Accord. 

Another area where a more collaborative approach could do wonders is health and care.

Spending on the care economy is growing fast as our population ages, chronic health conditions increase, and our expectations grow. Despite the big dollar signs, though, the headline numbers hide that we’re well below peer countries for spending on prevention. 

Early investments in health and social services can pay big dividends down the track. Home visiting programs that reduce child maltreatment are estimated to save $295,000 per family over a lifetime. The SunSmart campaign for skin cancer awareness saved nearly $9 per $1 invested. A program providing culturally safe maternity care for Aboriginal and Torres Strait Islander mothers reduced pre-term births, saving $4,800 per baby.

However, too often these programs can’t secure funding. Budget and political cycles are short, while the benefits from prevention and early intervention are long term (and hard to measure). An agency or level of government that bears the costs of a program may not be the one that benefits.

This budget should commit $1.5 billion over five years for evidence-backed, preventive interventions across Commonwealth, states and territories. Just as importantly, it should develop an architecture for intergovernment collaboration through a national partnership agreement. We estimate this approach could save governments $2.7 billion over 10 years.