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Home From Growth to Income: How the Federal Budget is reshaping investment priorities
May 22, 2026

From Growth to Income: How the Federal Budget is reshaping investment priorities

This article contains general information and commentary only. It does not constitute investment advice or a recommendation. This document reflects the views of its author as at May 2026. These observations are based on current policy proposals and market conditions, which may change. 

For investors assessing portfolio allocation, the key takeaway from this Federal Budget is the broader policy shift rather than any single measure. To the extent proposed tax changes reduce the relative appeal of residential strategies that depend more heavily on tax advantages and capital growth, income-producing assets may warrant closer consideration. That may improve the relative appeal of quality commercial real estate, where returns are often supported by contracted cashflows, tenant covenants and leasing fundamentals, although the extent of that benefit will depend on how different components of return are ultimately taxed.

Portfolio strategies already shifting given macro backdrop

This reset is landing at a time when investors are already recalibrating around two dominant macro themes: 

Against that backdrop, proposed Budget measures introduce additional considerations for investors, and potentially tilt preferences toward assets that are more income-oriented. 

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What changed (and why it matters for property investors) 

Two measures were particularly salient for investors: 

 

1) Negative gearing changes (residential focus) 

Proposed reforms to negative gearing for established residential property may reduce the relative after-tax appeal of some residential strategies, particularly those that rely more heavily on tax settings to support returns. For investors, the key implication is comparative: if established residential after-tax outcomes become less attractive, some investors may place greater weight on other asset classes. In that context, commercial property may warrant closer consideration, particularly where return profiles are supported by income and leasing fundamentals rather than reliance on tax settings to enhance outcomes. 

2) Capital gains tax (CGT)  

Proposed changes to CGT may diminish the after-tax payoff from capital gains for some investors, which may increase the relative appeal of strategies supported by current income rather than purely back-ended appreciation. 

However, the implications for commercial property investors are more nuanced. While proposed changes to negative gearing are focused on residential property and do not directly affect the deductibility of income from commercial assets, commercial investors may be exposed to the changes in CGT. In addition, many private investors hold commercial property through discretionary trusts, where forthcoming tax changes may further influence after-tax outcomes. 

For property trusts in particular, part of the income distributed can be tax deferred, which reduces the cost base over time and can shift a portion of returns into capital gains. This means overall outcomes may still depend meaningfully on CGT treatment at disposal. 

As a result, while income-oriented strategies may become relatively more attractive, any reduction in the CGT discount could still weigh on total returns for some commercial property investors, depending on structure and the balance between income and capital growth.  

The impact won’t be uniform: two investors can hold the same asset and experience different net outcomes. Investors may wish to assess exposure at the structure level (individual, company, trust, SMSF, etc.) and seek advice where appropriate. 

Why commercial property looks relatively stronger  

Commercial real estate’s return profile is typically anchored by rental income (often with CPI or fixed escalations) – supported by: 

  • Lease terms and WALE (weighted average lease expiry) 
  • Tenant covenant quality and occupancy fundamentals 
  • Asset selection and active management (leasing, retention, capex discipline) 

In other words, while capital growth matters, many commercial property strategies are not primarily dependent on it.  

In that context, well‑selected commercial property may play a stronger role as a portfolio income stabiliser and diversifier, particularly where cashflows are supported by leasing fundamentals and supply constraints, noting that after-tax outcomes will still vary depending on investment structure and the treatment of capital gains over time, making it important for investors to consider how their investment structure influences after‑tax outcomes. These characteristics do not remove risks associated with commercial property, including tenant concentration, leasing risk, valuation movements and changes in financing conditions. 

 

Bottom line

The Budget doesn’t rewrite the investment case for commercial property, but it may be considered by market participants to improve its position within portfolios relative to strategies for established residential that are more reliant on tax settings and capital growth. Combined with macro conditions that elevate the value of dependable cashflows, the policy direction reinforces a simple point for investors: 

In a world where growth is less advantaged and uncertainty remains elevated, contracted income and real‑asset diversification matter more. 

 

Disclaimer

This material is prepared for discussion only and should not be relied upon for any other purposes. It has been prepared on a good faith basis but its contents have not been formally verified, and no Cromwell entity or person accepts any duty of care to any person in relation to the information it contains. It should not be considered to be investment advice, marketing material or a promotion or offer of any Cromwell fund, product or services. Any person that wishes to invest in any Cromwell fund, product or service should refer to the relevant information or legal documents produced in relation to such opportunity before making any investment or other decisions.  

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