Budget 2026–27: Impact on the construction industry

Treasurer Jim Chalmers delivered the 2026–27 Federal Budget on Tuesday May 12, framing it as the Labor government's most transformative since coming to power in 2022.

For Australia's construction industry, the Budget brings significant infrastructure investment, long-awaited productivity reforms and notable changes to how residential property investment is taxed.

Here’s what you need to know.

The government has committed $13.5 billion in infrastructure funding to states and territories in 2026–27 alone, delivered through the Infrastructure Investment Program, plus $8.6 billion over 11 years for nationally significant transport projects covering highway upgrades, urban transport links and regional rail freight — including $1.75 billion to strengthen the national rail freight network.

For residential construction, the standout measure is a new $2 billion Local Infrastructure Fund targeting the "last mile" enabling works — water, sewerage and roads — to support up to 65,000 new homes over ten years.

Funding is tied to state and territory commitments on faster approvals and improved land release. For businesses across the construction supply chain, the forward pipeline of publicly funded work looks solid.

The most consequential element for residential construction is the overhaul of property investment tax settings, taking effect from 1 July 2027.

Negative gearing on residential property will be limited to new builds only. Properties held at announcement (7:30pm AEST, 12 May 2026) are fully grandfathered.

The 50 per cent CGT discount will be replaced with CPI-based cost base indexation and a 30 per cent minimum tax rate on capital gains, applying only to gains accruing after 1 July 2027.

Importantly, eligible new builds — defined as dwellings that genuinely add to housing supply, including construction on vacant land and knock-down rebuilds that increase dwelling numbers — retain both negative gearing and the existing CGT discount.

This is a deliberate incentive to redirect investor demand toward new construction and support off-the-plan pre-sales activity for apartments and medium-density developments.

Treasury modelling projects the reforms will produce around 75,000 additional owner-occupiers over the next decade, with house price growth slowing by approximately two per cent over a couple of years. The impact on rents is expected to be minimal — less than $2 per week at the median.

Beyond the dollar figures, this Budget takes meaningful aim at chronic delays in project delivery.

Mandatory Australian Standards will become freely accessible to all builders and trades by removing a compliance cost barrier that has long frustrated small and medium-sized businesses and hindered consistent adoption of the National Construction Code.

Environmental approvals reform is another significant unlock. More than $500 million has been committed to overhaul the EPBC framework, with $105 million directed specifically at housing-related assessments.

This includes AI-enabled digital tools to speed up approvals, bilateral agreements with states to reduce duplicated processes, and clearer timelines for compliant projects.

For developers and major contractors, EPBC delays have long been among the most costly and unpredictable project risks so this is a genuine step forward.

The Local Infrastructure Fund also incentivises states to adopt nationally consistent planning and construction rules as a condition of funding, with faster approvals flowing benefits through the entire supply chain.

The Budget commits $85.2 million over four years to improve recognition of migrant skills through faster, more flexible assessments.

The centrepiece is $75.1 million for a new skills assessment system through Trades Recognition Australia (TRA), designed to integrate occupational licensing and pilot streamlined assessment-to-licensing pathways for priority trades including electricians and plumbers.

A further $5.6 million over three years funds a new TRA program specifically for onshore visa holders, ensuring existing qualifications and practical trade experience are recognised for employment purposes.

The government is also continuing its $5.3 million investment over two years in the CFMEU Administration, signalling its commitment to restoring governance and stability.

On apprenticeships, however, the Budget moves in the wrong direction. Employer incentive payments have been reduced from $5,000 to $4,000, and large residential building employers have been cut from eligibility entirely with support now limited to SMEs and Group Training Organisations with less than 200 employees.

Two broader Budget measures will be felt across the construction supply chain.

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A new loss carry-back provision allows companies with under $1 billion in turnover to offset a tax loss against tax paid in the previous two years, providing useful cash flow support during project gaps or downturns.

Australia's peak construction bodies welcomed the supply-side reforms but were united in their concern over the property tax changes.

The Housing Industry Association warned that the negative gearing and CGT reforms risk weakening private investment incentives at exactly the time more capital is needed in housing, and that the tax changes risk offsetting an otherwise positive Budget for the sector.

Master Builders Australia CEO, Denita Wawn, was direct: "The Government's broken promises on CGT and Negative Gearing dilutes many of the positive features of tonight's federal budget. The opportunity that exists to turbocharge housing supply has been lost."

Wawn pointed to Treasury's own estimate of 35,000 fewer homes over the decade, against a National Housing Accord already forecast to fall more than 200,000 homes short of its target.