Green schemes take a hit in federal Budget 2026

The Australian Government announced its Budget for the 2026–2027 financial year on Tuesday, 12th May 2026.

Treasurer Jim Chalmers said, “This is the most significant tax reform package for more than a quarter of a century and it continues the Albanese Labor government’s record of responsible economic management.

“Our reforms will make our tax system better, fairer and simpler and make our economy and our tax system work in the interests of more Australians.”

Focused on younger voters, it will provide financial benefits to first-home buyers and working families; however, some sustainability projects and future EV buyers have taken a hit.

Here are some of the budget reforms that may affect Australia’s ongoing sustainability progress:

• The Electric Car Discount will wind down, albeit slowly, with the tax exemption for EVs worth over $75,000 reduced from April 2027. New owners of electric vehicles worth below $75,000 will still receive the exemption until April 2029.
• A $500 million package to implement Australia’s nature law reforms was announced. The package includes $250 million to establish the National Environmental Protection Agency.
• The Hydrogen Headstart project will lose government funding as it believes the program was not being adopted as anticipated. This project offers tax credits for projects producing hydrogen from renewable energy.
• Unallocated funding for the Solar Sunshot and Battery Breakthrough Initiative will be withdrawn.
• Financial savings will be made from other grant schemes, including the Powering the Regions Fund and the National Water Grid Fund.
• No new tax was announced on Australian gas exports.
   

Commenting on the budget changes, Australian Conservation Foundation national climate policy adviser Annika Reynolds said, “While we welcome measures to ensure the longevity of the electric vehicle FBT exemption and the successful cheaper home batteries program, these are modest measures.

“In this moment, Australians are calling for government to tax gas exports fairly and use that money for cost-of-living relief and the restoration of nature.”

Along with these changes, no further relief measures were announced for fuel — with the fuel excise discount winding up in July 2026. However, a $10bn package was announced in the Budget to expand domestic fuel stockpiles. The federal government said this will ensure at least 50 days of supply for jet fuel and diesel, and 37 days of petrol.

“A budget measure to build up onshore fuel reserves is understandable in the short term, but it reinforces a narrow definition of energy security centred on fossil fuel supply,” said Nicole Forrester, Chief Regenerative Officer, WWF-Australia. “Real, long-term energy security and cost-of-living relief will come from reducing our reliance on fossil fuels altogether.”

Businesses, however, are set to benefit with the announced productivity package, including $3.5bn in new measures that will lower tax. These changes include:

• Permanently introducing two‑year loss carry back for all companies up to $1 billion in turnover from 2026–27, to support resilience, investment and sensible risk-taking by Australian firms. This is set to benefit up to 85,000 businesses each year.
• Introducing loss refundability for startups from 2028–29, to help new businesses invest and grow in their first two years. Refundability will be capped at the amount of fringe benefits tax and PAYG withholding from employees’ wages. This is set to benefit up to 25,000 startups each year.
• Expanding tax incentives for venture capital from 2027–28, by increasing some asset caps not adjusted for over 20 years, to unlock more investment in venture capital by global and local investors — including super funds — supporting the next wave of innovative Australian businesses to start up and scale up.
• Better targeting and simplifying the Research and Development Tax Incentive from 2028–29, to support more high‑impact innovation.
• Making the $20,000 small business instant asset write‑off permanent, to support small businesses to invest and deliver around $890 million in cash flow support over the next five years.
   

“This is a responsible budget that is all about resilience and reform,” Chalmers said. “It’s all about getting Australians through the global oil shock and building an economy that works for more people.

“We’re delivering more cost‑of‑living help and building a more productive economy, a better tax system, a fairer housing market and a stronger and more sustainable Budget.”

Image credit: iStock.com/djgunner