Federal Treasurer Jim Chalmers has downplayed expectations the government will reap a tax bounty from changes in next month’s budget as he reassures property investors past decisions will be respected.

Scaling back negative gearing and capital gains tax concessions for property investors are likely to be included in the May budget, which Chalmers said would focus on countering inflation and intergenerational inequality.

The Iran war has deepened the government’s inflation predicament.

Inflation figures for March, released on Wednesday, showed the headline rate rise from 3.7 per cent to 4.6 per cent for the month as the closure of the Strait of Hormuz caused the cost of fuel to soar by about a third.

“Those inflation numbers were confronting,” Chalmers told ABC TV on Thursday.

“Australians are paying a hefty price for this war in the Middle East.”

The data confirmed the expectations of many market economists that the Reserve Bank will hike interest rates for the third time in a row at its meeting on Tuesday.

Commonwealth Bank chief economist Luke Yeaman said Chalmers had his work cut out to reduce government spending, improve productivity and bolster the economy’s resilience while delivering targeted cost-of-living help to Australians doing it tough.

Telegraphed changes to negative gearing and the capital gains tax discount will help boost revenue, and Yeaman expected the impact on house prices to be relatively modest.

Chalmers warned some predictions of a large boost to government revenue because of the changes were overplayed.

“People assume that all of a sudden, a huge amount of revenue will show up that you can automatically and immediately give away,” he told Yeaman in a podcast interview released on Thursday.

“Most people who think deeply about those tax changes that you have asked me about would understand that there wouldn’t be a heap of revenue.”

The government was ensuring investment decisions people had made in the past were recognised, Chalmers said.

He is expected to revert the capital gains tax discount to the pre-1999 model, which taxed real gains on assets adjusted for inflation.

That compares to the current, more generous, flat 50 per cent discount for assets held longer than 12 months.

Yeaman, who was a senior department official under Chalmers before switching to the Commonwealth Bank, said spending cuts to the tune of tens of billions of dollars were needed to reduce the deficit and help cool inflation.

The government has announced major changes to the NDIS, which it claims will save $35 billion over four years.

The government has announced sweeping reforms of the NDIS. Image: AAP

“This is a welcome and badly needed reform,” Yeaman said.

“The big question is whether such sharp cuts in spending can be delivered, especially so quickly.”

Demands from the states for more funding to cover the burden of taking on replacement services would test the government’s resolve, he said, and cost growth of 4-5 per cent over four years looked more realistic than the government’s prediction of 2 per cent.

That would punch a $14 billion hole in the budget out to 2029-30, Yeaman said.

He estimated changes to the NDIS and investor tax concessions could improve the budget bottom line by about $30 billion over four years and $200 billion over 10 years.

While revenue is expected to be upwardly revised due to higher commodity prices and inflation-boosted income tax receipts, Chalmers warned the Iran war would also negatively impact the budget.

“People often count the upside and not the downside,” he said.

“My current expectation is that some years will be worse, will be downgraded, and some years might be very slightly upgraded.”

-AAP