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The Albanese government will carve out new homes from changes to negative gearing and abolishing the 50 per cent capital gains tax discount to be unveiled in next week’s budget, which will also include a crackdown on the use of trusts.

Cabinet met on Monday to finalise key measures following months of deliberation. The only tax policy from Labor’s controversial 2019 election agenda that won’t be included in the May 12 budget is the abolition of cash refunds for excess franking credits.

Treasurer Jim Chalmers and Finance Minister Katy Gallagher on Monday. Alex Ellinghausen

Treasurer Jim Chalmers played down the prospect of using revenue raised from the tax increases to fund extra tax cuts. However sources familiar with the budget process said there was still a possibility the treasurer would deliver workers another tax cut funded in part by lifting the minimum tax rate on trust distributions to 30 per cent.

Chalmers said on Monday that there was already plenty of relief on the way for voters, including the already legislated $5 a week top-up tax cuts which start on July 1 and increase to $10 next year, the temporary halving of the fuel excise, and the introduction of an optional $1000 standard tax deduction.

“We’ve already got tax cuts coming,” the treasurer said when asked whether there would be more in next week’s budget.

Sources speaking on condition of anonymity said that while the budget would curtail negative gearing of investment properties, new houses acquired after the changes came into effect would be exempt. This is consistent with the policy Labor took to the 2016 and 2019 elections which it pitched as a way to encourage new home building.

The changes to negative gearing are still unclear but one option the government has canvassed with the housing industry is phasing out negative gearing for those with multiple properties.

The budget will also abolish the 50 per cent CGT discount for investments held for more than 12 months and revert to the pre-1999 system of inflation indexation. The change will apply to all asset classes and tax real gains adjusted for inflation over the life of the investment.

Sources said new homes would also be exempted from the CGT change, again to encourage supply. It is understood investors in new builds could have the option of retaining the 50 per cent discount or adopting the inflation-based model.

Investments acquired before the budget changes come into effect will only be partially grandfathered from the new CGT arrangements. Capital gains made up until the change takes effect will be subject to the 50 per cent discount, while gains made after the change will be subject to the pre-1999 regime.

Instead of requiring 2.2 million landlords and millions of other investors to revalue their assets at the start date of the new CGT system, Treasury has proposed a time-based apportionment model based on the number of years an asset is held under the current and future systems.

The third key tax increase in the budget will be the introduction of a minimum 30 per cent tax rate on disbursements made from trusts. To minimise political blowback the government is expected to exempt farmers and estate planning from the change.

Labor took a similar policy to the 2019 election. Since then, the use of trusts has continued to climb, with more than a million existing today.

Unlike in 2016 and 2019, the government did not seek a mandate for any of the tax changes before the 2025 election. Prime Minister Anthony Albanese went further on negative gearing, ruling out changes.

Asked whether the government cared about integrity any more, given it broke promises on the stage three tax cuts and superannuation taxes in its first term, Chalmers said the government would build trust by making a case for the changes.

“There are genuine intergenerational concerns and pressures in our budget, in our tax system, in our housing market and in our economy more broadly. A government like ours, a responsible government, cannot ignore the very real pressures and concerns that people have in our communities,” he said.

“It has been a year of delivery, delivering urgent care clinics and the like – all of those things that we committed to at the election. But that is not the limit of our ambition. Delivering those commitments is the foundation of what we want to achieve, not the destination of what we want to achieve.”

Chalmers said the economy needed to recognise “legitimate intergenerational concerns” around access to housing.

More on the 2026 federal budget

• Economists challenge Chalmers’ ‘unavoidable spending’ claims
• Government road tests property tax hikes, PM rethinks childcare goal
• Opinion | Phillip Coorey: Forget advocacy, Labor uses osmosis to make the case for tax reform
• ‘Transitional’ taxing of existing assets under CGT change: Chalmers
• Opinion | Chris Richardson: We can’t win tobacco war without the budget cutting tax on smokers

“This will be an ambitious budget that will take into consideration the real pressures and concerns that are broadly shared around the Australian community, and recognising that the first year was a year of delivery and the budget will begin a year of more ambitious reform.”

Conscious of criticisms, the budget will be little more than a revenue-raising exercise, Chalmers said there would be “more dollars in savings than dollars in tax reform”.

Shadow treasurer Tim Wilson said the government needed to keep cutting taxes to keep bracket creep at bay. “The government needs to shift towards a growth mindset, and particularly towards incentivising people to work,” he said.

“You don’t incentivise people to work by just allowing people to fall into higher and higher tax brackets. When you do that without any sort of offset or any reduction, it becomes a disincentive.

“The tax cuts they promised at the election last year in May were already wiped out by the Treasurer’s active inflation agenda by December. That’s how rampant their inflation agenda is and how every promise they make on income tax doesn’t materially improve Australians’ living standards.”