2025-2026 Federal Budget

On Tuesday, 25 March 2025, Treasurer Jim Chalmers handed down the 2025-26 Federal Budget, his 4th Budget.

2025–26 Federal Budget Highlights

In an election Budget, the Treasurer proposed to cut the personal income tax rate for the income threshold ($18,200 - $45,000) from 16% to 15% (from 1 July 2026) and 14% (from 1 July 2027) in an attempt to counter (to some extent) the impact of bracket creep and provide cost of living relief. The Government has also extended its energy bill rebate until the end of 2025 with a further 2 instalments of $75 for households and small businesses.

A Budget deficit of $27.6bn is forecast in 2024-25, to be followed by an underlying cash deficit of $42.1bn in 2025-26 (and $35.7bn in 2026-27 and $37.2bn in 2027-28).

The Budget papers note that the global economic outlook remains volatile and unpredictable with the threat of a global trade war and tariff tensions. Real GDP growth is expected to be broad-based and increase from 1.5% in 2024-25 to 2.25% in 2025-26 and 2.5% in 2026-27.

Inflation is expected to be 2.5% through the year to the June quarter 2025, 0.25 of a percentage point lower than the MYEFO forecast in December 2024. Inflation is expected to hit 3% in 2025-26 but sustainably return to the RBA's target band of 2-3% around the middle of 2025, which is around 6 months earlier than anticipated. Unemployment is now projected to peak lower at 4.25%.

On the revenue side, $676.1bn in tax receipts are expected for 2025-26, representing 23.5% of GDP (down from 23.7% for 2024-25). Despite the proposed tax cuts from 1 July 2026, tax receipts will grow to $778.3bn by 2028-29 (23.4% of GDP).

Since MYEFO, tax receipts excluding GST and policy decisions have been revised up $9.4bn over the 5 years from 2024-25 to 2028-29, mainly reflecting higher personal income tax and super fund taxes. Excluding policy decisions, personal income tax receipts have been upgraded by $9.9bn and super fund tax receipts by $9.7bn over the 5 years to 2028-29. The Government said this is supported in the near term by higher company tax, reflecting temporarily stronger mining sector profits.

Gross debt is expected to increase to $1.022 trillion (35.5% of GDP) in 2025-26 (up from $940bn in 2024-25) and peak at 37% of GDP in 2029-30 at a level above $1.223 trillion.

Tax-related measures announced

The major tax-related measures announced in the Budget include:

• Personal income tax rate cut - the tax rate for the income threshold ($18,200 - $45,000) will be cut from 16% to 15% (from 1 July 2026) and 14% (from 1 July 2027);

• ATO enforcement of taxpayer compliance - increased funding for the Tax Avoidance Taskforce (which focuses on multinationals and other large taxpayers), Shadow Economy Compliance Program (including illicit tobacco and non-compliant businesses), the Personal Income Tax Compliance Program and Tax Integrity Program (targeting  medium and large businesses and wealthy groups);

• Tax Practitioners Board (TPB) - increased funding for more sanction powers to target high-risk tax practitioners;

• Managed investment trusts (MITs) - start date confirmed for announced changes;

• Foreign resident CGT; clean building MITs - start dates deferred.

Other measures

• Energy bill rebate - extended until the end of 2025, providing an extra $150 of relief ($75 per quarter);

• Help to Buy home scheme expanded - income and price caps increased for the Government's shared equity home loan scheme;

• Child care subsidy - 3-day guarantee to replace activity test from January 2026;

• Apprentices and fee-free TAFE subsidies extended - the New Energy Apprenticeships Program will be reframed as the Key Apprenticeship Program and expanded to capture critical residential construction occupations;

• Ban on foreign ownership of housing - ATO to receive funding to enforce the ban on foreign residents from purchasing established properties;

• Beer excise - indexation frozen for 2 years;

• Alcoholic beverages and wine - remission cap and WET rebate cap increased to $400,000 per year from 1 July 2026;

• HELP debts - to be reduced by 20% and the repayment system will be moved to a marginal repayment system with a higher minimum repayment threshold;

• Employment contract non-compete clauses - to be banned for incomes up to $175,000.

Outstanding Bills, draft legislation, etc

Both Houses of Parliament will sit during the Budget week 25-27 March. When Parliament resumed on 25 March, there were several Bills (tax, super and other measures) before both Houses. It is possible that some of these Bills will lapse when the Prime Minister calls a Federal election (expected to be on 3, 10 or 17 May 2025).

Where to get Budget documents

The 2025-26 Budget Papers are available from the following website:

• Budget 2025-26 - https://budget.gov.au/

More information on the tax and related announcements is also contained in a number of Budget press releases on the Treasurer's website and the Assistant Treasurer's website.

Government seeks to woo voters with surprise tax cuts

Australia's Government launched A$17.1 billion in fresh tax cuts on Tuesday and announced other cost-of-living relief in a major push to win back disgruntled voters, tipping the Budget back into the red.

Prime Minister Anthony Albanese's centre-left government is seeking to win a second term in a May election and currently running neck-and-neck in the polls against the conservative Coalition Opposition.

Treasurer Jim Chalmers in his fourth budget, also unveiled new efforts to boost economic resilience and competitiveness, acknowledging heightened new global risks from trade wars as well as geopolitical tensions.

"This budget is really a platform for prosperity in a new world of uncertainty," Chalmers said in a press briefing. "It recognises the cost of living pressures are the front of mind for many Australians."

In keeping with the practice of recent years, most of the measures announced in the Budget had already been flagged.

The two new rounds of tax cuts, however, came mostly as a surprise and build on those introduced last year.

Through cutting the lowest tax bracket, a worker on average earnings will get a new tax cut of A$268 in the fiscal year ending June 2027 and A$536 per in the following fiscal year, more modest than the A$1,654 relief in the tax cuts introduced this fiscal year.

The Budget also features an $8.5 billion investment in public healthcare. It will also extend electricity rebates until the end of the year, roll out funding for public schools and cut student debt. That will knock the underlying budget balance for the 2025 fiscal year back into the red after 2 years of surpluses.

The A$27.6 billion deficit is slightly worse than the Government's projection of A$26.9 billion in December. Most analysts had expected an improvement in the fiscal position.

Deficits are expected to widen to a total of A$179.5 billion over the forward estimates.

''Australian exceptionalism''

The Budget also included A$3 billion in investment to support local production of green metals, A$20 million to encourage consumers to buy Australian-made goods and initiatives to boost economic competitiveness.

Some of this largesse will be funded by a tax windfall from an unexpectedly tight labour market and still strong mining profits. It now expects the jobless rate to peak lower at 4.25% and upgraded its near-term outlook for company receipts thanks to resilient commodity prices.

In his Budget, Chalmers projected a resilient Australian economy in the face of growing global headwinds. The economy has moved past its trough, expanding at the fastest pace in 2 years last quarter, while the unemployment rate stayed at a historically low 4.1%.

It estimated a modest impact from higher U.S. tariffs on Australia by 2030.

"This genuinely is a story of Australian exceptionalism in the context of global economic uncertainties," Chalmers said.

The increased spending and strong labour market, however, means inflation is now expected to pop up again to 3% over the next fiscal year, the top of the central bank's target band of 2-3%, before steadying at 2.5%.

That is likely to trouble the Reserve Bank of Australia, which has warned further policy easing is not guaranteed, having just cut rates for the first time in over 4 years last month.

The RBA sees inflation settling at 2.7% over the long term, above the midpoint of the target band. The market is not pricing another full rate cut until July, while rates are only seen falling to 3.4% by the end of the year, from 4.1% currently.

Personal Taxation

Personal tax rates cut from 1 July 2026 and 2027

The Government has proposed to cut the personal income tax rate for the income threshold ($18,200 - $45,000) from 16% to 15% (from 1 July 2026) and 14% (from 1 July 2027).

Under the proposed changes, every Australian taxpayer will receive a tax cut of up to $268 from 1 July 2026, rising to $536 from 1 July 2027.

The Government said the proposed tax cuts will provide "modest but meaningful" cost-of-living relief and "return bracket creep" by lowering average tax rates for all taxpayers, especially for low- and middle-income earners. The measure is expected to cost $17.1bn.

Combined with the existing Stage 3 tax cuts from 2024-25, the Treasurer said the average annual tax cut will increase to $2,229 in 2026-27 and $2,548 (for 2027-28), around $50 per week (relative to 2023-24 tax settings). A person on the average wage of around $79,000 will receive a total tax cut of $2,190 in 2027-28 (compared to 2023-24 tax settings), the Government said.

Example

Isha and Cameron have 2 children and are working full-time. Isha is a registered nurse and Cameron is a truck driver, both earning $80,000 per year. Under the Government's proposed tax cuts, Isha and Cameron will collectively pay $536 less tax in 2026-27, and $1,072 less in 2027-28. Combined with the existing Stage 3 tax cuts, Isha and Cameron will collectively pay $4,430 less tax in 2027-28 (compared to the 2023-24 tax settings).

The Government said the proposed tax cuts will reward workforce participation by encouraging part-time and lower income earners, to take on more hours of work. According to the Government, the combined tax cuts will increase total hours worked by 1.3 million hours per week, equivalent to more than 30,000 full time jobs, compared to 2023-24 tax settings. This increase is anticipated to be driven mostly by women, who are expected to increase their labour supply by 900,000 hours compared to 2023-24 tax settings.

The combined tax cuts are also estimated to increase nominal household disposable income by 1.9% by 2027-28 (compared with 2023-24 tax settings). They are also expected to keep the tax-to-GDP ratio at or below 2023-24 levels out to 2029-30.

Proposed resident tax rate changes - summary

The Government's proposed tax rate changes for 2026-27 and 2027-28 are summarised in the table as follows:

Superannuation

Super Guarantee: no change to legislated rate rise to 12% for 2025-26

The Budget did not announce any change to the timing of the next (and final) Super Guarantee (SG)

rate increase. The SG rate is currently legislated to increase from 11.5% to 12% on 1 July 2025. It has

been gradually increasing by 0.5% each year since it was 9.5% in 2020-21. The 12% rate from

1 July 2025 marks its final destination rate.

With the SG rate set to increase to 12% for 2025-26 (up from 11.5%), employers need to be mindful

that they cannot use an employee's salary sacrificed contributions to reduce the employer's extra 0.5%

of super guarantee. The ordinary time earnings (OTE) base for super guarantee purposes now

specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an

employee under a salary sacrifice arrangement (defined in s 15A of the Superannuation Guarantee

(Administration) Act 1992 (SGAA)) are not treated as employer contributions which reduce an

employer's charge percentage.

SG opt-out for high-income earners

The increase in the SG rate to 12% from 1 July 2025 also means that the SG opt-out income threshold

will decrease to $250,000 from 1 July 2025 (down from $260,870). High-income earners with multiple

employers can opt-out of the SG regime in respect of an employer to avoid unintentionally breaching

the concessional contributions cap ($30,000 for 2024-25 and 2025-26). Therefore, the SG opt-out

threshold from 1 July 2025 will be $250,000 ($30,000 divided by 0.12).

Other Measures

Govt energy bill rebate to be extended: extra $150 for 2025

The Government will extend its energy bill rebate until the end of 2025 by providing a further 2

instalments of $75 for households and small businesses.

From 1 July 2025, Mr Albanese said households and around one million small businesses will see

another $150 in rebates "automatically applied to their electricity bills in quarterly instalments, on top of

the previous rebates already being rolled out". Treasury estimates this will directly reduce inflation by

0.5 of a percentage point in 2025, and reduce household bills by 7.5% on average. The extra $150 of

energy bill rebates will cost $1.8bn.

Help to Buy home scheme expanded; income and price caps increased

The Government will increase its equity investment in the Help to Buy scheme to $6.3bn (up $800m),

and increase the income and price caps.

Under this shared equity loan scheme, the Commonwealth will provide an equity contribution up to 40%

of the purchase price to assist up to 40,000 eligible first home buyers to purchase a new or existing

home.

The Government said it will increase the scheme's income cap from $90,000 to $100,000 for

individuals, and from $120,000 to $160,000 for joint applicants and single parents.

The property price caps for eligible homes will also be increased and linked with the average house

price in each State and Territory, not dwelling price, so first home buyers have more choice. For

example, the NSW capital city and regional centre price cap will be set at $1.3m (rather than at the

median house price of approximately $1.5m) to ensure purchase prices remain within the borrowing

capacity of first-home buyers. The cap will be $800,000 for NSW (outside the capital city and regional

centres). See the table below for the new property price caps by region in other States and Territories.

The Minister for Housing, Claire O'Neil, said first home buyers on average rates with a $519,000 home

will save about $900 per month when buying an existing home, and $1,200 per month when buying a

new home.

Commonwealth legislation to establish the Help to Buy program was enacted on 10 December 2024

but the scheme will not commence until the Program Directions are in force. Ms O'Neil said the Help to

Buy scheme will be open for applications later in 2025, following registration of the Program Directions,

passage of State legislation, and implementation by Housing Australia.

Source: Budget Paper No 2 [p 75-76]; Minster for housing and homelessness joint media release,

22 March 2025.

Early childhood education: child care subsidy

The Government will provide $4.5m over 4 years from 2025-26 to Services Australia to make system

changes to ensure consistency with the passing of recent legislation to implement the Child Care

Subsidy Three Day Guarantee. This measure extends the 2024-25 MYEFO measure entitled Building

Australia's Future - Early Childhood Education and Care Reforms. According to the Government, this

16 of 23 will ensure families are entitled to at least 3 days a week of subsidised early childhood education and

care.

The Child Care Subsidy Three Day Guarantee will replace the Child Care Subsidy activity test

from January 2026.

The Government will also provide $2.5m over 2 years from 2024-25 as a one-off Business Continuity

Payment of $10,000 to Child Care Subsidy (CCS) approved services closed or partially closed for 8

days or more due to impacts of Ex-Tropical Cyclone Alfred, subject to conditions, including providers

agreeing to temporarily not charge families CCS gap fees during the closure period.

Source: Budget Paper No 2 [p 37]; Budget Paper No 2 [p 59]

Extending subsidies for apprentices and fee-free TAFE

The Government will provide $722.8m over 4 years from 2025-26 to deliver increased support for

apprentices. Funding includes:

• $626.9m over 4 years from 2025-26 to reframe the New Energy Apprenticeships Program as

  the Key Apprenticeship Program and expand it to capture critical residential construction

  occupations;

• $77.8m over 4 years from 2025-26 to extend the current interim Australian Apprenticeship

  Incentive System program settings for a further six months from 1 July 2025 to

  31 December 2025;

• $11.0 million over 4 years from 2025-26 to increase the Disability Australian Apprentice Wage

  Support subsidy; and

• $7.0 million over 4 years from 2025-26 to increase the Living Away From Home Allowance.

As flagged in MYEFO, the Government will also provide $253.7m over 2 years from 2026-27 (and an

additional $1.4bn from 2028-29 to 2034-25) to make Free TAFE a permanent program, funding at least

100,000 places annually from 1 January 2027. Legislation was introduced in November 2024 to give

effect to this measure. Free TAFE will prioritise cohorts that typically face barriers to education and

employment.

Source: Budget Paper No 2 [p 41]; Budget Paper No 1 [p 21]; Women's Budget Statement [p 52]

Reduction of HELP debts

As announced in the MYEFO, Government has confirmed in the Budget that it will make changes that

will reduce Higher Education Loan Program (HELP) and other student debts for more than 3 million

Australians by around $19bn. The measure will reduce outstanding student debts by 20% before

indexation is applied on 1 June 2025 - subject to the passage of legislation - which will remove $16bn in

debt.

The Government has also confirmed it will commit $182.2m over 4 years from 2024-25 (and $402.3m

from 2028-29 to 2034-25) to reform the repayment system for the HELP and other student loan

schemes. The reform will deliver a fairer student loan repayment system that is based on marginal

rates and will increase the amount individuals can earn before they are required to start repaying their

loan. It will take effect from 1 July 2025, subject to the passage of legislation.

The Government has already legislated a cap on HELP indexation based on the lower of the Consumer

Price Index or the Wage Price Index (see Universities Accord (Student Support and Other Measures)

Act 2024). The change was backdated to 1 June 2023, and has already reduced outstanding student

debt by around $3bn, according to the Government.

Date of effect

1 July 2025

Source: Budget Paper No 1 [pp 22-23]; Minister for Education Media Release, 25 March 2025;Women's

Budget Statement [p 42]

Employment contract non-compete clauses to be abolished

The Government will ban non-compete clauses for more than 3m Australian workers in industries

including childcare, construction and hairdressing. This has been spurred by the Treasury's

Competition Review which heard troubling accounts regarding the misuse of non-compete clauses,

including minimum wage workers being sued by former employers.

The ban on non-compete clauses will apply to workers earning less than the high-income threshold in

the Fair Work Act (currently $175,000). The Government will also close loopholes in competition law

that currently allow businesses to:

• fix wages by making anti-competitive arrangements that cap workers' pay and conditions,

  without the knowledge and agreement of affected workers; and

• use 'no-poach' agreements to block staff from being hired by competitors.

The Government will consult on policy details, including exemptions, penalties, and transition

arrangements. Following consultation and passage of legislation, the reforms will take effect from 2027,

operating prospectively to give businesses and workers time to adjust.

Source: Treasurer's Media release, 25 March 2025

Status of Bills

Parliamentary Bills still before Parliament

The following tax and tax-related Bills were still before Parliament when it rose on Thursday

13 February 2025. It is possible that some of these Bills will lapse when the Prime Minister calls the

Federal election.

Better Targeted Super Concessions Bill

The Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 (and

the companion Superannuation (Better Targeted Superannuation Concessions) Imposition Bill

2023) will reduce the tax concessions available to individuals with Total Superannuation Balances (or

TSBs) exceeding $3 million: see 2023 WTB 49 [866].

TLA Miscellaneous Measures Bill 2024

The Treasury Laws Amendment (Miscellaneous Measures) Bill 2024 contains the following

proposed amendments.

• Schedule 4 – includes changes to the secrecy provisions impacting the disclosure of information

  about ongoing ACNC investigations: see 2023 WTB 49 [867].

• Schedule 5 – reducing the frequency of FRAA reviews of APRA and ASIC: see 2023 WTB 49

  [868].

• Schedule 6 – a range of "miscellaneous and technical amendments" which include: (i) changes

  to the attribution of input tax credits for GST purposes and the deductibility of reverse charge

  GST: see 2023 WTB 49 [869]; and (ii) the effective date of resignation of directors of registered

  charities (this deals with some quirks arising from the interaction of the anti-phoenixing laws:

  see 2023 WTB 49 [865]).

• Schedule 7 – licensing exemptions for foreign financial services providers: see 2023 WTB 49

  [870].

• Schedule 8 – amendments to the Payment Systems (Regulation) Act 1998 to modernise that

  Act.

  
  

Tax Incentives and Integrity Bill

The Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024 proposes to:

• amend s 25-1 of the Luxury Car Tax Act 1999 by: (i) updating the definition of a fuel-efficient

  car; and (ii) amend the index number used to index the LCT threshold from All Groups CPI to

• the motor vehicle purchase sub-group of the CPI;

• amend s 25-5 and 26-5 of the ITAA 1997 to deny the income tax deductions for amounts of GIC

  and SIC incurred by a taxpayer in income years starting on or after 1 July 2025; and

• amend the TAA 1953 to extend from 14 to 30 days the period within which the Commissioner

  must notify a taxpayer of their decision to retain a refund amount arising from a BAS or another

  21 of 23

• notification under the BAS provisions for verification of information.

See further 2025 WTB 4 [39]. Schedule 4 was subsequently included in the Bill, which contains the

instant asset write-off measures, which is covered elsewhere in this Bulletin.

Other Bills under consideration

The following Bills were also before Parliament when it rose on Thursday 13 February. These are all

Private Members' Bills and are likely to lapse when Parliament is prorogued.

The Corporations Amendment (Streamlining Advice Process) Bill 2024 would impose

additional requirements in relation to the provision of personal advice to a retail client by a

financial advisor: see 2024 WTB 45 [829].

The Treasury Laws Amendment (Extending the FBT Exemption for Plug-in Hybrid Electric

Vehicles 2024 proposes to extend the FBT exemption for plug-in hybrid electric cars, which is

otherwise due to expire on 1 April 2025: see 2024 WTB 20 [370].

The Superannuation Guarantee (Administration) Amendment (Frontline Emergency

Service Workers) Bill 2025 proposes to increase the superannuation guarantee rate for

firefighters and paramedics by 4.4% to 16.4% to match the base rate of superannuation

contributions provided to Australian Defence Force (ADF) personnel: see WTB 5 [61] 2025.

Instant asset write-off extension to 2024-25: Bill still before Parliament

One of the Government's key tax measures that is currently still outstanding is the proposed extension

of the instant asset write-off measures for 2024-25. The measures are contained in Sch 4 to the

Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024.

There is no mention in the Budget papers of the measure, though it is alluded to in couple of media

releases. It can be assumed that the Government still intends to proceed with the measure as currently

drafted.

Background

By way of reminder, the measures will allow small businesses with an aggregated turnover of less than

$10 million, to:

• deduct in full the cost of eligible depreciating assets costing less than $20,000 that are first used

  or installed ready for use between 1 July 2024 and 30 June 2025;

• deduct an amount included in the second element (cost addition) of eligible depreciating asset's

  cost that they have incurred between 1 July 2024 and 30 June 2025, if they claimed an

  immediate deduction for the asset under the simplified depreciation rules in a prior income year

  where the amount is: (i) the first amount of second element cost incurred after the end of the

  income year in which the asset was written off; and (ii) less than $20,000.

The proposed $20,000 threshold under the measures applies on a per asset basis, so small businesses

can write-off multiple assets. Further, assets valued at $20,000 or more will continue to be placed into

the small business simplified depreciation pool and depreciated at 15% in the first income year and

30% each income year after that. In addition, pool balances under $20,000 at the end of 2024-25

income year can be written off.

Progress through Parliament

The implementation of this 2024-25 Budget measure has been anything but smooth. It was first

included in the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill

2024, but was dropped in the flurry of Parliamentary activity that took place at the end of 2024. At that

point, the proposal was homeless: see 2024 WTB 49 [919].

When the Tax Incentives and Integrity Bill was introduced, it did not contain the instant asset measures:

see 2024 WTB 49 [917]. The Bill was sent to Committee and Sch 4 was not mentioned in the

Committee's report, which is dated 30 January 2025. However, when debate resumed in the House of

Reps on 4 February, it had been included in the Bill as Sch 4 by way of a Parliamentary Amendment.

Note, though, that on the Parliamentary website the change is listed as a Government amendment

(sheet UG 105) dated 4 February 2025, albeit it was not subject to vote by the House on that day

(according to Hansard). Further, the text of the Bill does not yet contain Sch 4 (albeit it has its own

Explanatory Memorandum). The amendment was not voted on by the House. So presumably it was

inserted into the Bill by a technique that would possibly fool Penn and Teller.

What now?

The proposed change reflects the measure that was enacted in the Treasury Laws Amendment

(Responsible Buy Now Pay Later and Other Measures) Act 2024, ie the two amendments are

exactly the same, but the former applied for the 2023-24 income year while the other will apply for the

2024-25 year: see 2024 WTB 48 [878].

Note, though, that the Opposition had earlier proposed to amend the measure in the following manner,

namely to:

• extend the coverage from small businesses to medium businesses, ie all entities with an

  aggregated turnover of less than $50 million; and

• increase the threshold from $20,000 to $30,000.

See 2024 WTB 23 [407] for more details. It will be interesting if this will be addressed by the Opposition

Leader in his Budget Reply Speech on Thursday night.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.