Crafting a federal budget is never easy. Tonight’s budget is harder than most.

The government faces irreconcilable pressures: spend more to meet community demands, spend less to keep inflation down.

The Reserve Bank is concerned about inflation. Governor Michele Bullock has signalled a preparedness to drive Australia into recession rather than let inflation get out of control.

Treasurer Jim Chalmers and his advisers are well aware that increased government spending will push up inflation. It is not the main driver at present – that dubious honour goes to the impact of the Iran war on global prices – but it does contribute.

The government therefore has to keep a lid on spending, or increase taxes – or most likely do both – to reduce the likelihood of further interest rate increases.

Here’s a rundown of what to expect in tonight’s federal budget.

Tax changes are coming

Tax will be the centrepiece of the budget. The government has signalled it intends to reduce:

the capital gains tax (CGT) discount

tax concessions for trusts.

There are two good reasons for this – to help the budget bottom line, and intergenerational equity.

The Parliamentary Budget Office has estimated the combination of the CGT discount and negative gearing of residential property cost the budget A$13.4 billion in lost revenue this year.

Equity arguments apply especially to the CGT discount. Young people are being locked out of home ownership as house prices rise due........

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