diff --git a/cabal-install/Distribution/Client/ProjectConfig/Legacy.hs b/cabal-install/Distribution/Client/ProjectConfig/Legacy.hs
index 2811a4343a5..2742ebb4dad 100644
--- a/cabal-install/Distribution/Client/ProjectConfig/Legacy.hs
+++ b/cabal-install/Distribution/Client/ProjectConfig/Legacy.hs
@@ -166,10 +166,34 @@ commandLineFlagsToProjectConfig globalFlags configFlags configExFlags
       projectConfigShared        = convertLegacyAllPackageFlags
                                      globalFlags configFlags
                                      configExFlags installFlags,
-      projectConfigLocalPackages = convertLegacyPerPackageFlags
-                                     configFlags installFlags haddockFlags
+      projectConfigLocalPackages = localConfig,
+      projectConfigAllPackages   = allConfig
     }
-
+  where (localConfig, allConfig) = splitConfig
+                                 (convertLegacyPerPackageFlags
+                                    configFlags installFlags haddockFlags)
+        -- split the package config (from command line arguments) into
+        -- those applied to all packages and those to local only.
+        --
+        -- for now we will just copy over the ProgramPaths/Args/Extra into
+        -- the AllPackages.  The LocalPackages do not inherit them from
+        -- AllPackages, and as such need to retain them.
+        --
+        -- The general decision rule for what to put into allConfig
+        -- into localConfig is the following:
+        --
+        -- - anything that is host/toolchain/env specific should be applied
+        --   to all packages, as packagesets have to be host/toolchain/env
+        --   consistent.
+        -- - anything else should be in the local config and could potentially
+        --   be lifted into all-packages vial the `package *` cabal.project
+        --   section.
+        --
+        splitConfig :: PackageConfig -> (PackageConfig, PackageConfig)
+        splitConfig pc = (pc
+                         , mempty { packageConfigProgramPaths = packageConfigProgramPaths pc
+                                  , packageConfigProgramArgs  = packageConfigProgramArgs  pc
+                                  , packageConfigProgramPathExtra = packageConfigProgramPathExtra pc })
 
 -- | Convert from the types currently used for the user-wide @~/.cabal/config@
 -- file into the 'ProjectConfig' type.
diff --git a/cabal-install/changelog b/cabal-install/changelog
index 15771d30cd0..07a19bf7a49 100644
--- a/cabal-install/changelog
+++ b/cabal-install/changelog
@@ -1,6 +1,8 @@
 -*-change-log-*-
 
 2.2.0.0 (current development version)
+        * '--with-PROG' and '--PROG-options' are applied to all packages
+	and not local packages only (#5019).
 	* Completed the 'new-update' command (#4809), which respects nix-style
 	cabal.project(.local) files and allows to update from
 	multiple repositories when using overlays.