Treasurer Jim Chalmers is willing to anger older Australians to make the tax system fairer for younger generations.
But he admitted productivity growth would take longer to recover than previously thought during a major pre-budget address to a gathering of business economists in Melbourne.
Dr Chalmers used his speech on Thursday to lay clear groundwork for changes including scaling back property investor tax breaks and reforming business taxes to boost investment.
He promised his fifth budget would be full of ambition, flagging three packages: a savings package, a productivity and investment package, and a tax package.
His pledge comes amid reports Treasury is drawing up changes to the capital gains tax discount, negative gearing, trusts and tax exemptions for electric vehicles.
Asked whether he would be willing to upset older and wealthier Australians to make the tax system fairer for younger workers, Dr Chalmers said he believed people were ready for the sorts of issues he had been raising.
"I feel like there is a level of understanding in the community that sometimes hard decisions are warranted," he said on Thursday.
"And so my job as the treasurer, the responsibility that I embrace, is to take the right decisions for the right reasons, but also to spend time explaining to people why they're necessary."
Uncertainty caused by conflict in the Middle East had heightened the need for reform, Dr Chalmers said in prepared remarks.
The need to reinvigorate productivity was also pressing.
As the recent uptick in inflation has demonstrated, Australia's lacklustre productivity growth has reduced how quickly the economy can grow without contributing to price pressures, limiting living standards.
In the budget, Treasury would retain its assumption that Australia's long-term productivity potential would stay at 1.2 per cent, Dr Chalmers said.
But instead of taking two years to return to 1.2 per cent, the budget will assume it will take five years.
Other changes will include a higher migrant intake across the four-year forecast period due to lower-than-expected departures, and trimming fertility assumptions to reflect fewer expected births.
"Altogether, it means Treasury has changed its view of potential growth in the near term," Dr Chalmers said.
"This change alone means GDP is now likely to be a quarter to half a percentage point weaker in the middle years of the forward estimates."
Dr Chalmers reiterated tax reform would be guided by the three principles announced following his August economic roundtable: intergenerational equity, incentivising business investment and making the system simpler and more sustainable.
Advocates for tax reform say the 2026 budget will be the best opportunity Australia has had in decades due to Labor's large parliamentary majority and the long time until the next federal election.
A Greens-led parliamentary inquiry into the capital gains tax discount - in a report signed off by two Labor senators - found the measure unequally benefited wealthier Australians, skewing the market toward investors at the expense of owner-occupiers.
Shadow treasurer Tim Wilson said families were going backwards because productivity had "collapsed" under Labor.
"Jim Chalmers has admitted today what Australians already know," he said.
"Living standards are going backwards and he has no plan to fix it.Â
"This is not an economic vision, this is an economic admission of failure."