Federal Budget 2026-27: sustainable finance wins, policy and investment gaps, and emerging opportunities
The 2026-27 Australian Federal Budget tackles important and politically difficult economic reforms, winding back long-standing tax concessions that benefit wealthier Australians.
Reforms to capital gains tax, negative gearing, and discretionary trusts are a welcome move to support equal access to opportunity for Australians, and a first step to addressing the housing crisis. The Budget also significantly tightens the National Disability Insurance Scheme (NDIS) in a move that was widely viewed as necessary.
Below we outline the key sustainable finance wins, outstanding policy and investment gaps and opportunities for sustainable finance, followed by a deep dive into measures including climate-related financial disclosures, the underfunding of adaptation and resilience, and streamlining of environmental regulation.
Roses (sustainable finance wins)
Despite a tighter fiscal environment, the Government has preserved key transition measures including:
the Cheaper Home Batteries Program
targeted Electric Vehicle (EV) incentives
key elements of Future Made in Australia (Net Zero Fund, low carbon liquid fuels)
The Budget advances implementation of major environmental reforms, including the new National Environmental Protection Agency and streamlining of environmental approvals.
The Government also reaffirmed its commitment to climate-related financial disclosures while consulting on a limited set of options to reduce implementation burden for smaller entities.
Thorns (policy and funding gaps)
Climate and nature were deprioritised in the Budget narrative, overtaken by fiscal discipline, tax reform, productivity and fuel security.
Net zero programs were a source of budget savings, with the Government banking anticipated underspends including on the Hydrogen Headstart (green hydrogen) and Solar Sunshot (solar manufacturing) programs.
The Budget also failed to allocate meaningful new funding for climate adaptation and resilience. This leaves major questions about implementation of Australia’s National Adaptation Plan and Australia’s exposure to future climate-related costs and impacts.
And the Budget missed the opportunity for structural reforms that would support capital allocation for low carbon activities including in particular gas export or super profits tax and fossil fuel subsidy reform.
The Government has also made no moves towards digital sustainability reporting – a key productivity measure that would bring Australia into line with major international markets.
Rosebuds (emerging opportunities)
Proposed reforms to the Your Future Your Super (YFYS) performance test are a potential step forward for the Australian superannuation sector.
Reforms could help unlock greater institutional investment for sustainability by addressing settings that can discourage longer-term investment in areas like renewable energy and sustainable infrastructure.
However, as the Conexus Institute recently observed “removing a barrier is not the same as creating an incentive.” The Government must also be willing to introduce risk-sharing and policy settings that make sustainable investments more commercially attractive.
The Budget highlights ongoing work to improve coordination across government Special Investment Vehicles (SIVs), including through the Government’s Investor Front Door. Better coordination and information sharing is a step forward, but more fundamental changes to SIV operations are needed to effectively de-risk and scale institutional investment into key net zero transition industries.
Budget 2026-27 Deep Dive
Implementation of sustainability disclosures
The Government has flagged adjustments to the Climate-Related Financial Disclosures regime, aimed at reducing burden for smaller entities.
Thresholds that prescribe which proprietary companies are covered by sustainability reporting rules will be increased from $50m to $100m of consolidated revenue, and $25m to $50m of consolidated gross assets (employee thresholds remain the same). The changes will reduce the number of private companies captured in Group 3 of the climate-related disclosures scheme and also apply to annual financial reports and directors’ reports.
Treasury will also consult on a limited set of options to “reduce burden while maintaining core sustainability requirements” including:
Clarifying how key concepts, including ‘undue cost or effort’, apply in practice
Adjusting assurance settings to ensure they are proportionate and practical
Setting clearer boundaries on supplier information requests, to reduce costs and complexity for small businesses.
The consultation is an opportunity to address challenges identified during the initial implementation phase. The Government’s commitment to maintaining core sustainability reporting requirements underscores the important role of climate disclosures in providing investors and stakeholders with consistent, decision-useful information – helping to standardise reporting and facilitate access to international capital markets.
Productivity measures target performance test, special investment vehicles
The budget also confirms proposed changes to the Your Future Your Super performance test to “reduce unintended barries to investment for Australia’s $4.5tn superannuation sector”. Options for reform have been detailed in Treasury’s consultation paper, released earlier this month.
The budget also promises better coordination (but not new funding) of Government investment through the Investor Front Door and a recently established Investor Council – a forum for Government’s many “Special Investment Vehicles” and relevant agencies to coordinate funding activities.
Unfortunately, the Government declined to adopt recommendations by ASFI and others to transition to digital reporting – a key productivity measure that would bring Australia into line with major international markets.
Net Zero budget savings
Net zero programs have been a significant source of savings – with the Government banking anticipated $1.3bn underspends in grant funding for green hydrogen (Hydrogen Headstart) and battery and solar manufacturing (Battery Breakthrough and Solar Sunshot). This reflects reported challenges in early-stage green hydrogen projects and the dubious feasibility of an Australian battery and solar manufacturing industry.
The Powering the Regions program has yielded $258.2m in savings over 3 years from undelivered Australian Government purchases of Australian Carbon Credit Units, and underspends in ARENA grant funding for industrial decarbonisation. The Department of Climate Change, Energy, Environment and Water (DCCEEW) has seen a funding cut of $2.2bn over 14 years, including 7 years of funding from Australia’s National Environmental Science Program.
Key net zero programs continue
The Government’s flagship Cheaper Home Batteries Program has emerged unscathed, with the Government estimating that this combined with vehicle to grid capability will deliver a $7bn reduction in energy system costs to 2050. The Budget starts to wind back electric vehicle subsidies (see below) but confirms previously announced initiatives under the Future Made in Australia Net Zero stream – including the $5bn National Reconstruction Fund Net Zero Fund, $1.1bn for Low Carbon Liquid Fuels, and $1bn to green the Boyne Aluminium Smelter – alongside ongoing implementation of the National Energy Market Review recommendations.
In smaller spending measures:
$148m (mostly in re-prioritised funds) has been committed over the next three years from 2025-26 to 2027-28 to provide modest support for international climate cooperation including a previously announced $19.1m to support Australia’s role in COP31.
$24.7m in funding has been reprioritised to deliver a three-year National Solar Panel Recycling Pilot with up to100 collection sites across Australia.
$23.3m has been reprioritised from DCCEEW funding to support national greenhouse gas accounting, ongoing reforms to the Australian Carbon Credit Unit (ACCU) scheme, and climate risk management in the public service (under the heading Strengthen Australia’s Carbon Crediting and Emissions Reporting).
Climate adaptation and resilience remains underfunded
Despite sustained advocacy from ASFI and many of our partners across the finance ecosystem, the Government has not committed to additional funding for adaptation and resilience in the Budget. This leaves serious questions about further development and implementation of its National Adaptation Plan to build resilience in the face of severe and increasing climate impacts.
ASFI’s report focusing on financing adaptation and resilience highlighted that disaster costs are already underestimated in Budget processes, with the Commonwealth spending around $1.6bn a year on disaster recovery while budgeting only $215m (2025-26 Federal Budget), creating a $6bn gap across the forward estimates (citing research done by the Centre for Policy Development). This mismatch between budgeted disaster recovery and actual fiscal costs highlights the need to invest in reducing the climate-related impacts, rather than continuing to rely on recovery efforts after disasters occur.
Gas reservation not taxation
The Government chose not to introduce new taxes on LNG exports despite calls from climate groups and senator David Pocock's viral speech highlighting that Australia raises more tax revenue from beer than gas, despite being one of the world’s largest gas exporters.
Instead, the government has announced gas reservation rules intended to decouple domestic gas supply prices from international markets. While the details are still being developed, early designs of the scheme have faced criticism, including from Tony Wood at the Grattan Institute, who questions its potential effectiveness.
Gradual rollback of Electric Vehicle (EV) subsidies
The Budget begins to phase out the Electric Car Discount, shifting from a full fringe benefits tax (FBT) exemption for eligible electric vehicles to a permanent 25% FBT discount over time.
Eligible EVs costing up to $75,000 will continue to receive the full FBT exemption until 1 April 2029, while EVs above this threshold will move to the discounted rate from 1 April 2027. Existing arrangements will not be affected. The change reflects the success of the scheme in accelerating EV uptake, while refocusing support toward more affordable models and helping build the second-hand EV market over time.
The Budget also provides $40m for EV chargers in regional blackspots and kerbside locations. Alongside this, $55m will support a Transport Resilience and Capacity Kickstart pilot to shift more freight onto rail and maritime transport, improving fuel efficiency and supply chain resilience.
Capital Gains Tax for foreign investment in renewables
The Budget softens the impact of broader foreign resident Capital Gains Tax (CGT) reforms with a limited time concession for renewable energy infrastructureassets to 30 June 2030. From 1 July 2026, the Government will replace the 50% CGT discount with an inflation-based discount and introduce a minimum 30% tax on real capital gains, restoring the original intent of taxing only gains above inflation. In parallel, reforms to the foreign resident CGT regime are designed to close a loophole by ensuring foreign investors are taxed on gains from Australian land-linked assets.
While this creates a more level playing field for domestic investors, draft legislation on the reforms had raised concerns about retrospective application to existing renewables projects. The concession, estimated to reduce receipts by $425m over five years, gives up some of the Budget saving to maintain offshore capital flows into large-scale renewable energy projects during the transition to the reformed regime
Fuel security measures
Responding to global oil shocks triggered by conflict in the Middle East, the Government has released a headline $14.8bn Strengthening Australia’s Fuel Resilience package, prioritising near-term supply security and longer-term reserves. The package confirms the Government’s previously announced supports including $7.5bn in financing support through Export Finance Australia to secure fuel and fertiliser supply, $3.2bn to establish an Australian Fuel Security Reserve of around 1bn litres of diesel and jet fuel and increases to the Minimum Stockholding Obligation across fuel types.
Temporary fuel excise cuts will not continuebeyond 30 June leaving drivers exposed to higher fuel costs, but the Budget leaves the Fuel Tax Credit scheme unchanged. Climate Council analysis(citing advocacy from Fortescue) estimates these diesel tax breaks will grow to almost $13bn per year, or $47bn over the forward estimates, while a cap on large claims could have saved more than $2.5bn per year and affected only the 18 resources companies claiming more than $50m annually. This subsidy creates a significant disincentive to electrification in Australia’s mining sector.
Implementing government environmental reforms
Following the landmark 2025 EPBC Act reforms, the Budget provides more than $500m over four years to implement the new environmental protection architecture.
This includes establishing the National Environmental Protection Agency (NEPA) as an independent regulator from 1 July 2026, streamlining environmental assessment and approval pathways with states and territories, and investing in environmental information, data and digital systems, including artificial intelligence, to improve transparency and speed up decision-making. The NEPA will oversee compliance and enforcement of the EPBC Act and the new National Environmental Standards, including the Matters of National Environmental Significance (MNES) Standard now open for consultation.
The package also provides $36.9m over two years for the DCCEEW and the Clean Energy Regulator to continue administering the Nature Repair Market and develop additional methods to increase investment in nature and support environmental offsets. Together, these reforms are intended to support faster approvals for nationally significant projects, including housing, renewables and critical minerals, while strengthening environmental protection and assurance.