Albanese Government Faces Policy Quicksand on Tax, NDIS, and Migration

Only a little more than a year into its second term and with Pauline Hanson turning politics upside down, the Albanese government finds itself in policy quicksand on three core issues: its budget tax reforms, its wrestle to curb the National Disability Insurance Scheme, and the electorally sensitive area of migration.

On Thursday, the government announced changes worth $475 million over the forward estimates to its tax package, yet to be legislated. While the budget itself indicated there would be consultations with stakeholders about details, the measures are seeking to allay the fierce post-budget backlash from vested interests and some commentators.

If anyone doubts Labor's concern to smooth the passage for the tax legislation, they only have to note that the alterations have been unveiled ahead of the report of the Senate inquiry into it.

Usually, it would be the treasurer alone assigned to do the sweep-up. But Prime Minister Anthony Albanese fronted Thursday's news conference with Jim Chalmers, perhaps to make it clear he personally has been listening and taking account of feedback.

Some measures will be incorporated into the legislation that will be before the Senate in the coming fortnight, while others will wait.

The government says its changes mean "all 2.7 million active small businesses" will be eligible for the capital gains tax concessions. The threshold is being lifted from $2 million turnover to $10 million.

The government is also proposing special arrangements for start-ups that are "innovative".

In addition, it is seeking to put to bed the scare campaign about a "death tax" by exempting all kinds of testamentary trusts from its planned 30% tax on discretionary trust distributions. (The legislation currently before parliament doesn't cover trusts — that will come later.)

The government will amend in the Senate its tax legislation to provide more certainty on detail — the current version leaves much up to the treasurer's discretion.

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In what will be an intense fortnight sitting beginning Monday, ahead of the winter parliamentary break, the government's wish would be to get through both its tax legislation — encompassing reforms to negative gearing and capital gains tax, and including the Working Australians Tax Offset — as well as its NDIS reform legislation.

It is looking to the Greens as partners to pass the tax reforms (even though the Greens have criticisms of the negative gearing grandfathering) and to the Coalition to be the dance partner on the NDIS legislation.

There had been speculation about a possible opposition-Greens deal to extend both the Senate inquiry into tax (which the Coalition would like to do) and the inquiry into the NDIS (that the Greens want to run longer). But the prospect of such a deal seems to have faded.

The NDIS legislation sets the framework for a more restricted scheme, with its cost growing at only 2 per cent annually over the next four years, rising to about 5 per cent after that (compared to the present 10 per cent).

The government says the measures in its bill will "fight fraud and stop rorts, slow rapid cost increases, [and] make eligibility requirements clearer". The critics say they will worsen the lives of vulnerable people.

As happened with the government's reform push last term, the states are reluctant to pull their weight in taking on sufficient responsibility as the Commonwealth cuts back. They are collectively jacking up. The federal government thinks (or hopes) this is posturing.

Equally, if not more, damaging for the government has been the evidence at the Senate inquiry, with heart-tugging stories of people potentially disadvantaged by the cutbacks to come.

Reform of the scheme will take years, so the government can expect a drawn-out, concerted campaign for it to soften its stance. But the more it does so, and the longer it takes to put in place state government supports to fill gaps, the less the prospect of meeting the financial targets, especially that highly ambitious one of an annual cost increase of only 2 per cent.

Reform of the NDIS is at the heart of the budget's savings and slippage would have serious fiscal consequences.

Despite its hopes of securing the NDIS legislation in the coming sitting, the expectation is that the government faces the prospect of having to accept a longer inquiry.

The reform task in migration is less acknowledged by the government, but also imperative. On Thursday, the latest National Overseas Migration numbers for the 2025 calendar year were released, a total of 301,000. The NOM is "the net gain or loss of population through international migration to and from Australia".

Although it has come down from the stratospheric annual peak of about 550,000 it reached post-pandemic, the levels of the last several quarters suggest the NOM is settling at around 300,000 annually. This is well above the about 225,000 that has been the long-run average forecast.

For political and substantive reasons, the government knows the NOM has to be shaved. The opposition is committed to slashing immigration (it has not released a number by which it would cut it, although it has set a ceiling for the NOM at the number of homes completed in the year before — currently about 170,000). More importantly, in political terms, immigration is a springboard for One Nation.

A suite of issues around immigration needs review by the government, but as has happened with tax policy and NDIS reform, there are complications wherever it looks.

Reducing immigration has implications for economic growth, the overall workforce, particular industries and sectors, and for exports, as well as for education.

There are many jobs Australians won't do, at least in enough numbers, for which migrants are vital. This is most obvious in aged care.

Construction requires more skilled workers, and without enough workers, the housing crisis will worsen. The agricultural sector relies on temporary workers.

The higher intakes of previous years have increased pressure for family reunions, which are currently taking years and, in some cases, a ridiculous number of years.

Crackdowns on student numbers come at the cost of tertiary institutions and returns to what is one of Australia's leading export industries.

Much attention has been focused on the opposition's protracted production of its immigration policy. The government's priorities in the area will be different, but the difficulties it faces if the system is to be made more fit for purpose are formidable.