Federal Budget 2026-27: Implications for Australia’s workforce 

• The workforce agenda shifts from labour supply to productivity: The Budget prioritises AI adoption, digital capability and workforce redesign, signalling a stronger focus on productivity, automation and workforce adaptability.  
• Workforce governance and transparency expectations continue to rise: New gender equality reporting obligations, expanding pay transparency expectations and greater scrutiny of workforce policies will require stronger governance, reporting and compliance capability from employers.  
• Workforce wellbeing focus continues with supported by mental health investments: Increased investment in mental health services and heightened regulatory oversight reinforce the growing importance of workforce wellbeing and organisational resilience. 

The 2026-27 Federal Budget confirms a shift in the government’s workforce agenda - moving from broad-based skills expansion toward a more targeted focus on productivity, participation and regulatory enforcement

While last year’s Budget centred on addressing labour shortages through training and workforce supply initiatives, this year’s measures reflect a more complex operating environment for employers. The Treasurer’s pre-budget commentary highlighted the impact of geopolitical instability and global supply chain disruption on the availability and cost of critical goods, including medical supplies and pharmaceuticals. For employers, this introduces an additional layer of workforce and operational risk that should be carefully considered when managing return-to-work outcomes for injured or unwell employees, particularly where disruptions to healthcare supply chains may affect access to treatment, medication or care services.

The 2026-27 Budget places productivity at the centre of workforce policy, with increased investment in digital capability and artificial intelligence (AI), including up to $70 million in grants to support AI adoption across Australian businesses.

This reflects a broader shift in workforce policy from simply increasing labour supply toward improving productivity, adaptability and output per worker. New funding for digital skills development and technology adoption recognises that future workforce growth will increasingly depend on how effectively organisations integrate technology, redesign work, and build workforce capability.

As AI and automation continue to reshape roles, workflows and skill requirements across industries, organisations will need to proactively manage skills obsolescence, workforce redeployment and capability gaps. Equally, the growing focus on productivity is likely to intensify demand for AI-enabled and digitally embedded technologies, as well as competition for talent across high-tech and IT sectors where employee benefits have traditionally been mature.

For employers, this means realising productivity gains will require sustained investment in reskilling, organisational redesign and change management, alongside a clear strategy for integrating AI into day-to-day operations. 

Alongside productivity reform, the Budget increases expectations around workforce governance, transparency and accountability. This creates opportunities for organisations to review policies – such as flexible working, parental leave, pay equity and return-to-work support - while ensuring workforce strategies remain aligned with regulatory expectations. For multinational organisations, there may be a further opportunity to align emerging Australian obligations with existing frameworks developed for international requirements such as the EU Pay Transparency Directive.

Equality was a key theme of the Budget, which introduces greater accountability for large employers, requiring organisations with 500 or more employees to set and report against three gender equality targets over a three-year period. These targets may relate to areas such as gender pay equity, workforce and leadership representation, flexible work and parental support, and workplace culture and safety. In practice, this is likely to increase scrutiny of workforce policies, pay transparency and employee benefits structures.

As a result, employers may wish to review areas such as Total Rewards reporting, parental leave settings, flexible work arrangements and gender-based insurance or superannuation contributions to identify opportunities to improve transparency, address inequities and strengthen alignment with broader workforce and inclusion objectives.

Mental health and workforce wellbeing were singled out as increasingly important components of workforce participation, productivity and organisational resilience. New investments in mental health services announced in the Budget will sit alongside the heightened regulatory scrutiny around workforce wellbeing.

A total of $2.5 billion has been allocated by the government to improve access to Medicare-backed mental health services, alongside targeted initiatives aimed at addressing workforce shortages - particularly in regional areas - and progressing a broader national workforce strategy.

As public support expands, organisations may have opportunities to supplement existing initiatives by leveraging government-funded programs and redirecting investment toward broader workforce wellbeing priorities. Notably, additional support has been directed toward high-risk groups - including first responders - while reforms aim to improve outcomes for individuals with disability through more effective use of existing NDIS funding.

Organisations may therefore need to strengthen their approach to:

• Implementing appropriate control measures and support systems
• Building leadership capability around mental health and workforce wellbeing
• Maintaining robust governance, monitoring and record-keeping frameworks.

While the Budget’s workforce measures are intended to strongly support participation, productivity and resilience, they nevertheless contribute to an increasingly complex operating environment for employers.

As well, ongoing cost-of-living pressures and rising operating expenses - including energy, insurance and workforce-related costs - continue to affect both businesses and employees.

“Australia’s long‑standing housing shortage is making homes unaffordable. This challenge hits young workers and families hard, and we’re addressing it from every responsible angle,” said Treasurer Chalmers.

The Budget’s housing and tax reforms - including changes to capital gains tax concessions and expanded first-home buyer support through 5% deposit initiatives - are aimed at providing support for young Australians. This is especially relevant for sectors such as technology and digital services, where these cohorts represent a significant proportion of the workforce and competition for talent remains high.

The direction for employers handed down in this year’s Budget is clear:

• Workforce strategies must align with productivity and technology adoption
• Participation initiatives will require measurable outcomes and accountability
• Compliance obligations will continue to expand, particularly in areas such as mental health and reporting.

In this environment, organisations that take a proactive and structured approach to workforce planning, risk management and employee benefits and support will be best positioned to navigate the evolving landscape.

^{Prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 (Mercer Australia). References to ‘Mercer’ shall be construed to include Mercer Australia and/or its associated companies.}

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