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Access our Budget Report Overview and Tax Report for a full analysis.
On Tuesday 25 March 2025, Treasurer Jim Chalmers handed down his fourth Federal Budget, laying out out $785.7 billion of spending in the 2025-26 financial year, covering everything from tax cuts to cheaper healthcare.
A notable surprise in this year’s Federal Budget is the unexpected reduction in personal income tax, set to take effect from 1 July 2026. The starting rate of income tax will decrease from 16% to 14% by 2027-28, at an estimated cost of $17.1 billion over the forward estimates period.
The Budget outlines an underlying cash deficit of $27.6 billion (or 1% of GDP) for 2024-25. However, larger deficits are projected through to 2028-29, reflecting ongoing fiscal challenges.
Despite these deficits, Federal Government net debt is expected to remain relatively stable, ranging between 21% and 24% of GDP over the forward estimates period.
There are some positive forecasts, with real GDP growth expected to increase to 2.75% and unemployment stabilising at 4.25%, providing a degree of economic optimism.
Support measures for households and businesses remain a focus:
- The Energy Bill Relief Fund has been extended to 31 December 2025 at a cost of $1.8 billion.
- Healthcare measures include increased Medicare bulk billing incentives and reduced prescription costs under the Pharmaceutical Benefits Scheme.
- Australian manufacturing will receive further support, with additional funding allocated to the metals industry, including green iron projects and assistance for transitioning to renewable energy.
- Over $1.8 billion has been committed to road and rail infrastructure as part of a broader $17 billion 10-year program.
The Australian Taxation Office (ATO) will receive nearly $1 billion in additional funding to enhance compliance activities. However, the Budget does not introduce any major tax reform, an area that may require further attention to support long-term economic growth and global competitiveness.
Ultimately, Australia’s future prosperity remains closely tied to productivity.
Winners and Losers
The Budget delineates several groups that stand to benefit or face challenges:
Winners:
- Taxpayers: Individuals earning above $18,200 will benefit from the announced tax cuts, aiming to provide economic relief amid high living costs.
- Power Bill Payers: The extension of the Energy Bill Relief Fund includes a $150 energy rebate, assisting households in managing rising energy costs.
- Healthcare Recipients: Increased funding for Medicare aims to boost bulk billing, reduce medicine costs, and expand urgent care clinics, enhancing access to healthcare services.
- Families with Children in Childcare: Additional support measures are introduced to assist families with childcare expenses, aiming to alleviate financial burdens.
- Women’s Healthcare: Targeted investments are made to improve women’s health services, addressing specific healthcare needs and promoting well-being.
- Aged and Childcare Workers: Pay increases are allocated for workers in aged and childcare sectors, recognizing their contributions and addressing workforce challenges.
- First Homebuyers: Initiatives are introduced to support first homebuyers, facilitating access to the property market through various assistance programs.
Losers:
- Small Businesses: The Budget does not continue the $20,000 instant asset write-off, potentially impacting small businesses’ investment capabilities.
- Welfare Recipients: JobSeeker rates remain unchanged, drawing criticism for not addressing the financial needs of welfare recipients.
- Lowest Income Earners: Individuals earning below the tax-free threshold of $18,200 receive minimal benefits from the tax cuts, offering little financial relief to this group.
- Sheep Farmers: The continuation of the plan to end live sheep exports by 2028 affects sheep farmers, impacting their livelihoods and industry operations.
These allocations reflect the government’s priorities and the sectors they aim to support or reform in the coming fiscal period.
As further policy announcements emerge in the lead-up to the next election, we will be closely monitoring their potential impact on the economy.
Access our Budget Report Overview and Tax Report for a full analysis.
