Shane Oliver: Australians aren't getting ahead - and the Budget might not fix it

This interview was filmed Wednesday 6th May, 2026.

Next week’s Federal Budget is being sold as a “reform” budget. But according to AMP Chief Economist Shane Oliver, investors should be careful not to confuse reform with redistribution that simply adds more fuel to the inflation fire.

In this interview with Livewire, Oliver breaks down the real economic problem Australia faces - and why he believes tinkering with capital gains tax, negative gearing and trusts risks becoming more about politics than productivity.

He explains why the economy is now trapped in a dangerous mix of weaker growth and sticky inflation, why government spending has become too large, and what he believes would constitute real tax reform.

He also shares his concerns about housing affordability, intergenerational equity, bracket creep, and why Australia’s productivity problem could ultimately leave future generations poorer.

Among the major themes discussed:

• Why Australia’s biggest problem is stagnant productivity and falling living standards
• Why government spending may be making inflation worse
• How changing the CGT discount to an indexation method may actually mean lower taxes in some cases
• Why he thinks removing negative gearing could backfire on renters and first-home buyers
• The type of tax reform Australia actually needs
• Why bracket creep is quietly hammering younger Australians
• The three major things investors should brace for in the Budget

Watch the full interview above, particularly because many of Oliver’s answers contain far more nuance than the political debate surrounding these policies often allows. A summary of his  views are provided below.

#1. Australia’s real problem is weak productivity and falling living standards

Oliver says the Budget debate is missing the bigger picture. While politicians frame the Budget around “resilience,” “intergenerational equity” and cost-of-living relief, he believes the core issue is far more fundamental: Australia is struggling to grow without reigniting inflation.

“The real issue is growing the economy at a decent rate again and growing people’s living standards,” Oliver says.

According to Oliver, Australia has entered a far uglier economic trade-off than in previous decades. Growth has weakened, inflation remains sticky, and even small improvements in demand are now running into capacity constraints.

“We’ve seen a clear deterioration in the growth inflation trade-off; weaker growth, higher inflation. That all comes down to the cost of living issues that we all complain about and this perception that we're not getting ahead like we used to be.”

He argues this ultimately comes back to productivity. Without stronger productivity growth, living standards stagnate - regardless of how much governments spend.

“There’s a clear correlation over long periods of time that if we can grow our productivity... we can grow our living standards. If you can’t grow productivity, then you end up with stagnant living standards.”

#2. Why government spending is making inflation harder to control

One of the strongest themes throughout the interview was Oliver’s concern around the sheer scale of public spending across federal and state governments.

He notes that government spending as a share of GDP has climbed to levels not seen since World War II.

“You really have to go back to World War II to see this sort of level of government spending,” he says.

In his view, the problem is not simply the size of spending, but the way governments respond to inflation shocks.

When inflation rises and households struggle, governments have increasingly responded with rebates, subsidies and relief packages. While politically popular, Oliver argues these measures can worsen inflation by pushing more money back into the economy.

“That might sound like the right thing to do, but the experience has been that it just puts more money back into the economy... and can arguably make the inflation problem worse.”

He used fuel tax relief as a key example. While he admits he personally enjoyed paying less at the bowser, he says the policy undermined the price signals that help economies adjust.

The bigger risk is that excessive government spending begins crowding out private investment, housing construction and productivity-enhancing business spending.

#3. The surprising consequences from scrapping the CGT discount

CGT changes have become one of the most closely watched parts of the upcoming Budget - but Oliver says the impact on investors may not be as straightforward as many assume.

At present, investors receive a 50% discount on capital gains held longer than 12 months. However, the government is reportedly considering moving back toward the pre-1999 system, a Keating-era indexation approach where investors are taxed only on “real” gains after inflation.

Oliver says whether investors are better or worse off depends entirely on the economic environment.

“In a period of high inflation and more constrained capital growth, you’re actually better off in the old model.”

By contrast, the current 50% discount works best in periods of strong capital growth and low inflation - precisely the backdrop investors enjoyed for much of the past 25 years.

But if the future looks different - slower asset growth and structurally higher inflation - Oliver says the pre-1999 model may actually become preferable for many investors, particularly retirees holding lower-growth assets.

“For older Australians... it might actually turn out better anyway because you’re only taxed on the real growth in the asset.” 

#4. Why removing negative gearing could make housing affordability worse

Oliver was considerably less supportive of aggressive changes to negative gearing.

While he acknowledged there may be merit in limiting excessive use of the policy, he warned that broader restrictions could reduce rental supply and worsen affordability pressures.

“I think removing it is a silly thing to do,” he says bluntly.

Negative gearing is deeply embedded within Australia’s tax system because investment costs are generally deductible against income. When the Hawke-Keating government temporarily removed negative gearing in the 1980s, the policy was eventually reversed after rental market pressures intensified.

“Paul Keating did remove negative gearing in 1985, and then found a negative impact on the property market in the supply of rentals.”

He worries that restricting negative gearing to new builds only could simply concentrate investors and first-home buyers into a smaller segment of the market.

“You could end up with an overcrowded market... and that could make new builds less affordable.”

More broadly, Oliver argues the housing crisis has far deeper structural causes than tax settings.

“The housing affordability problem in Australia exists because we’ve had population growth way in excess of the ability to supply more homes.”

In his view, the real solution lies in boosting housing supply to meet demand (see chart below) and improving construction efficiency - not simply “fiddling” with tax policy.

#5. Why younger Australians are being squeezed

One of the most interesting parts of the interview came when Oliver discussed intergenerational equity.

While much of the political debate frames tax changes as helping younger Australians, Oliver argues the real issue is bracket creep and Australia's addiction to income tax receipts relative to other economies.

“The reliance is too much on income tax ... the top marginal tax rate is egregious” he says.

Over time, bracket creep pushes workers into higher tax brackets even if their wages are merely keeping pace with inflation.

Genuine tax reform would involve increasing the GST while lowering income tax rates and indexing thresholds to inflation.

But he also made a broader point: retirees with large super balances often pay very little tax in retirement, while younger workers shoulder a growing burden.

“We’re going to be relying on all those Gen Zs and millennials to pay higher income tax.”

He argues a broader consumption-based tax system would spread that burden more evenly across generations.

#6. The three major things investors should brace for in the Budget

So what does Oliver think investors should actually expect on Budget night?

First, he expects spending restraint, even if some short-term relief measures remain.

“I would be bracing for less government spending,” he says.

Second, he believes investors should prepare for broader tax reform than currently being discussed publicly, particularly around corporate taxation.

“There could be significant changes to corporate tax coming out of this budget.”

And third, he says investors should watch closely for deregulation measures designed to make it easier for businesses to invest, hire and build.

“The key in this budget is to see less regulation.”

The Budget could be a positive - stay tuned for more!

Ultimately, Oliver says if the Budget genuinely focuses on productivity, deregulation and spending restraint rather than short-term politics, the outcome could actually be positive for investors.

“If it goes according to plan... then I think that should actually be positive for the share market and positive for investors generally.”

The 2026 Federal Budget will be handed down by Chalmers at 7:30 pm (AEST) on Tuesday, 12 May. 

Livewire will be covering the event and key announcements, so be sure to check our website during the evening.