At a glance:

• The Budget does not ease immediate financial pressure on businesses.

• Operating costs remain high, demand is uncertain, and access to funding is tight.
• Key tax changes may reduce investment and require some businesses to reconsider their structure.
• With little immediate support to ease operating costs or improve liquidity, many businesses will continue facing tight cashflow conditions.
• Insolvency levels remain elevated, with increased ATO enforcement expected to accelerate pressure on financially stressed businesses.
• Current conditions suggest financial distress may represent a longer-term operating baseline than a temporary cycle.

1. Introduction

The 2026-27 Federal Budget does little to ease the immediate financial pressures facing many Australian businesses.

While the Government’s budget position has improved relative to earlier forecasts, operating conditions remain difficult. Costs remain elevated, consumer demand is uncertain, access to funding is tightening, and the ATO enforcement activity continues to increase.  

From a structuring perspective, the Budget suggests current levels of financial uncertainty are unlikely to ease in the near term and may instead represent a new operating baseline for many businesses.

2. What does the economic outlook mean for business?

The Budget includes the following key expectations:

• Cash deficit of $31.5 billion for 2026–27, an improvement of $2.8 billion compared with the Government’s December 2025 forecasts. GDP growth is expected to slow from 2.25% in 2025-26¹, to 1.75% in 2026–27.
• Inflation peaking at 5% by June 2026, before easing to 2.5%², subject to energy prices stabilising.      
• Unemployment is rising gradually to 4.5%.

These forecasts assume that global conditions stabilise.  However, ongoing geopolitical tensions, including sustained disruption to oil supply, pose a material risk that conditions may worsen ³. A deterioration in these conditions could lead to:

• Higher and more persistent inflation.
• Slower economic growth.
• Higher interest rates and more difficult borrowing conditions.

For businesses, this means they will continue to face a difficult operating environment, with ongoing cost pressures, uncertainty and tighter access to funding.

These conditions are being shaped not only by economic pressures, but also by the measures introduced in the Budget.  

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3. Which budget measures matter most for businesses?

The Budget includes several major changes to taxes and spending, along with some targeted support for households. It also aims to improve the Government’s financial position over time.

The key measures announced are set out below:

The Budget is primarily focused on long-term change rather than short-term support.  It has been described as ‘generational’, reflecting a broader policy shift toward restructuring the tax and investment landscape over time rather than delivering immediate economic stimulus.  It prioritises structural reform over immediate business relief, leaving many businesses to continue managing elevated costs and constrained cash flow without meaningful short-term support.

Importantly, the Budget does not provide meaningful direct relief for business or investment in the near term. While the focus on productivity and the potential involvement of the Productivity Commission in reviewing insolvency settings (through an independent review of how the insolvency system operates) are positive steps, they are longer-term. For medium-sized businesses facing investment and planning pressures, a gap persists between policy intent and practical support. Many businesses continue to require more immediate and practical restructuring solutions to support recovery, stabilisation and future investment decisions.

The proposed tax changes have been strongly criticised by the Opposition ⁴, which has argued they may reduce investment, affect housing supply and limit wealth creation. The Opposition has also indicated it would seek to reverse key measures if elected. This creates uncertainty, particularly for businesses and investors trying to plan.

These changes are likely to create uncertainty for small and medium-sized businesses regarding investment, planning and operating decisions. Over the next 12 months, investment decisions may be delayed or reconsidered, and some business strategies may need to be adjusted. In some cases, businesses may need to reconsider their structure, ownership arrangements or operating model to remain viable in the new environment.

For some businesses, particularly those reliant on investment, property-related returns or existing tax structures, these changes may place additional pressure on profitability and cash flow. These conditions are likely to accelerate restructuring activity, particularly among businesses already operating with limited liquidity or high debt exposure.

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4. Why are insolvency levels likely to remain elevated?

The insolvency industry is entering this budget period from an already elevated base.

Key observations:

• Insolvency activity remains elevated compared with historical averages, with 9,307 companies entering external administration during the first eight months of the 2026 financial year. These failures are mainly concentrated in ⁵:
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  • Construction (approximately 24%)
  • Accommodation and food services (approximately 15%)
  • Professional, scientific and technical services (approximately 7%)
  • Retail trade (approximately 7%)

The Budget does not include broad support measures for businesses, so these trends are unlikely to improve in the short term.

Instead, the current operating environment continues to drive:

• Elevated levels of business failure.
• Increasing pressure from creditors, including financiers, landlords and the ATO.
• More businesses are managing difficult supply chain and operational factors.

Many businesses already under financial pressure may struggle to recover and are more likely to enter formal insolvency processes rather than stabilise.

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5. Will businesses see meaningful cost relief⁶?

The Budget assumes inflation will moderate over time. However, key drivers, particularly energy, remain uncertain.

Global events have disrupted the supply of energy, goods and transport, pushing up the cost of fuel, materials and shipping. These higher costs continue to flow through to businesses, further increasing operational costs.

The Budget includes support for households, including a $250 annual tax offset and a $1,000 instant tax deduction for work-related expenses. While these measures may provide some relief, they are relatively small and are unlikely to significantly increase spending in the short term. As a result, businesses may see only limited improvement in customer demand.

Importantly, the Budget does not directly reduce the key costs businesses face. Many of these costs, especially energy, are influenced by global factors and are outside the control of Government policy.

At the same time, some economists warn of a possible economic slowdown, and there is increasing discussion about the risk of a recession. If this occurs, consumer spending may reduce further, making trading conditions more difficult.

For businesses, this means:

• Operating costs are likely to remain high.
• Recovering rising costs through price increases may remain difficult.
• Consumer demand may remain soft, particularly across discretionary sectors.
• Cash flow may remain tight.

As a result, many businesses may continue to experience pressure on profits, with rising costs not fully offset by higher prices. This can place ongoing strain on cash flow, particularly for small and medium businesses with limited financial buffers.

The Budget also includes measures to improve energy security over time. While these may help reduce risk in the future, it is unclear whether they will lower costs in the near term. For now, businesses are likely to continue facing elevated costs and ongoing financial pressure.
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6. Why should businesses expect stronger ATO action?

A key but under-recognised implication of the Budget is that the Australian Taxation Office (ATO) is likely to continue its strong focus on recovering unpaid tax debts.

The Budget provides $86.3 million over four years in additional funding for fraud detection and prevention, and to assist the ATO to:

• Identify and investigate tax issues.
• Take stronger action to recover unpaid taxes.
• Improve its ability to gather information about taxpayers.
• Use enforcement tools such as garnishee notices.
• Monitor higher-risk businesses and advisors.

This means the ATO is expected to be more active in following up overdue tax debts and may have greater ability to take enforcement action where amounts remain unpaid.

For businesses:

• Outstanding tax debts are more likely to trigger ATO engagement, including demands for formal payment arrangements.
• Delays in addressing tax obligations may lead to stronger action, such as recovery proceedings or legal action.
• The time available to manage tax debt informally may be shorter than in prior years.

This increases the likelihood that unpaid tax debts will progress to enforcement action, particularly for businesses already under financial pressure. This can bring forward the need for restructuring, rather than allowing more time to recover through normal trading.

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7. Which sectors remain most exposed?
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What should businesses be doing now?

In the current environment, many businesses cannot rely on external conditions improving in the short term. The focus needs to be on active management of financial risk and cash flow.

Key actions include:

In this environment, early action is critical. Businesses that actively manage cash flow and address issues early are more likely to stabilise and retain options. Those who delay may face fewer options as financial pressure increases.

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Conclusion

The 2026-27 Federal Budget aims to improve the Government’s financial position over time. However, in the short term, it does little to ease the financial pressure facing small and medium businesses. The focus is on long‑term structural change rather than immediate support.

At the same time, the outlook for businesses is being shaped not only by domestic conditions but by ongoing global disruption. Elevated energy prices, supply chain pressures and geopolitical tensions continue to drive higher costs and create uncertainty. These factors are largely outside the control of Government policy but are having a direct impact on operating costs and access to markets.

Economists broadly expect that cost pressures will remain elevated, with limited short-term relief.  Demand is uncertain, funding conditions are tight, and ATO enforcement is increasing. Taken together, these conditions suggest that current levels of financial pressure are not temporary but are becoming a more enduring feature of the business environment.

In response, many businesses will need to actively manage cash flow, reduce costs and reassess how they operate. For some, this may require changes to business structure, ownership arrangements or operating models to remain viable. For others, the combination of sustained cost pressure and limited support may raise questions about ongoing viability.

From a restructuring perspective, early action will be critical. Businesses that identify pressure early and respond proactively are more likely to stabilise and preserve options. Those who delay may find that pressure builds quickly, limiting the pathways available and increasing the risk of formal insolvency.