2025 Australian Federal Budget Summary

On Tuesday, March 25, Treasurer Jim Chalmers delivered the Australian Government’s 2025-2026 Budget, marking a return to deficit after two consecutive years of surpluses. The forecasted shortfall of $42.1 billion, while an improvement on last year’s projection, comes alongside rising deficits extending through to the 2028-2029 financial year.

With a federal election fast approaching, the Budget seeks to balance cost-of-living relief with fiscal responsibility and is relatively tame in nature. Additional spending, which largely extends existing policies for another year — over $7 billion in 2025-26 and more than $20billion over five years — reinforces the Budget’s voter appeal.

Key Initiatives

Energy
  • $180bn to deliver a $150 energy bill rebate extension until the end of 2025.
Healthcare
  • $8.5bn on Medicare for:
    • Increases to Medicare payments
    • 50 new urgent care clinics
    • Bulk billed GP services.
  • $1.8bn over 5 years for cheaper medicines on the Pharmaceutical Benefits Scheme.
  • $240m for women’s health – reproductive health and menopause
Education
  • $500m to provide a 20% cut to HECS-HELP debt for students, and a realignment of the repayment schedule to reduce the amount required to be paid (from 1 July 2025).
Housing
  • $800m to expand the ‘Help to Buy’ scheme reducing the size of the deposit required to buy a home by co-buying with the Government.
Families
  • Three days of subsidised childcare for families with young children (income tested) from 1 January 2026 replacing the Child Care Subsidy activity test.
Lifestyle
  • From August, the excise on beer will be frozen for 2 years.

Individuals & families

“Modest” two stage personal income tax cut

The Government will implement a “modest” tax cut for all taxpayers, effective from 1 July 2026, with a further reduction from 1 July 2027. The maximum tax savings will be $268 in the 2026-27 financial year and $536 from 2027-28 onwards.

As part of these changes, the tax rate for the $18,201–$45,000 income bracket will decrease from 16% to 15% on 1 July 2026, and further to 14% from 1 July 2027. This measure is expected to cost $648 million over four years.

Thresholds FY2024-25 FY2025-26 FY2026-27
Up to $18,200 0% 0% 0%
$18,201 – $45,000 16% 15% 14%
$45,001 – $135,000 30% 30% 30%
$135,001 – $190,000 37% 37% 37%
$190,000 + 45% 45% 45%

Medicare levy thresholds increased for low-income earners

The Medicare levy low-income threshold, which exempts low-income earners from the levy, will increase from 1 July 2024.

As a result, eligible low-income earners will pay less when they lodge their 2024-25 income tax returns. This adjustment is expected to cost $648 million over five years.

Thresholds FY2024-25 FY2025-26
Singles $26,000 $27,222
Families $43,846 $45,907
Single seniors & pensioners $41,089 $43,020
Family seniors & pensioners $57,198 $59,886
Family additional child or student $4,027 $4,216

$150 energy bill relief

Households and small businesses will receive an additional $150 energy bill credit, applied automatically in quarterly instalments between 1 July 2025 and 31 December 2025.

The extension of energy bill rebates is expected to cost $1.8 billion over two years.

Foreign resident CGT amendments delayed

The implementation of proposed tax system changes for foreign residents, originally set to take effect from 1 July 2025, has been delayed.

The start date for amendments to the capital gains tax (CGT) rules for foreign residents has been pushed back to at least 1 October 2025, with further delays possible depending on the passage of legislation through Parliament.

The proposed changes would:

  1. Expand the range of assets subject to CGT for foreign residents upon disposal.
  2. Modify the rules determining whether the sale of shares in a company or units in a trust are subject to CGT.
  3. Require foreign residents to disclose transactions involving shares or trust interests valued at $20 million or more to the ATO before they occur.

Two-year ban on foreign ownership of established homes

From 1 April 2025, the Government will ban foreign and temporary residents, as well as foreign-owned companies, from purchasing established dwellings to curb ‘land banking.’ The ban will be in place for two years, with limited exceptions.

MIT amendments delayed

The extension of the clean building management investment trust (MIT) withholding tax concession, originally set to commence on 1 July 2025, has been delayed. It will now take effect from the first 1 January, 1 April, 1 July, or 1 October after the Act receives Royal Assent.

Additionally, the Government will amend tax laws to clarify MIT arrangements, ensuring legitimate investors can continue to access concessional withholding rates. These changes will apply to fund payments from 13 March 2025 and will support the ATO’s increased efforts to prevent misuse in this area – see Taxpayer Alert 2025/1.

‘Help to buy’ program extended

The Government’s Help to Buy program lowers the deposit required to purchase a home by providing an equity contribution. Under the scheme, Housing Australia contributes up to 30% of the purchase price for an existing home and up to 40% for a new home, in exchange for a share in the property.

Originally, the income threshold for eligibility was $90,000 for singles and $120,000 for joint applicants. The Budget increases these limits to $100,000 and $160,000, respectively. Additional conditions apply.

The program is not currently available to applicants.

Business & Employers

$20,000 small business instant asset write-off not extended

Notably, the Budget does not include an extension of the instant asset write-off scheme, which allows businesses with turnover under $10 million to immediately deduct the cost of assets up to $20,000, rather than depreciating them over time.

Without an extension, the scheme is set to expire on 30 June 2025, after which the asset write-off limit will revert to $1,000.

Non-compete clauses to be banned

The Government has announced a ban on non-compete clauses for low- and middle-income employees, defined as those earning below the Fair Work Act high-income threshold (currently $175,000). Non-compete clauses restrict employees from moving to competitors after leaving a job.

In April 2024, Treasury released an issues paper for consultation on worker non-compete clauses and other restraints The review stated that these clauses hinder competition by discouraging workers from changing jobs, creating barriers to new businesses entering the market and limiting the expansion of existing businesses.

Additionally, the Government is strengthening competition laws to prevent businesses from:

  1. Fixing wages through anti-competitive arrangements that cap workers’ pay and conditions without their knowledge or consent.
  2. Using ‘no-poach’ agreements to prevent staff from being hired by competitors.

Beer tax paused and benefits for wine and alcohol producers

Indexation of the draft beer excise and excise-equivalent customs duty rates will be paused for two years starting in August 2025. This means the price of beer will not increase due to tax changes.

Additionally, the Excise Remission Scheme will provide further support by increasing the annual caps for eligible brewers, distillers, and wine producers to $400,000 from 1 July 2026, up from the previous cap of $350,000.

Government & Regulators

Almost $1bn to the ATO for tax compliance

The Government has allocated $999 million over four years to expand the ATO’s compliance programs, which include:

  • Tax Avoidance Taskforce
  • Shadow Economy Compliance Program
  • Personal Income Tax Compliance Program
  • Tax Integrity Program (medium and large businesses and wealthy groups)

These programs are expected to generate a threefold return, amounting to $3.2 billion.

$700m external contractor cost cutting

The Government plans to further reduce its reliance on consultants, contractors, and labour hire. The budget estimates that these continued cuts to external labour will result in savings of $718 million by 2028-29.

Trade tariffs extended on Russia and Belarus

The Government has extended the additional 35% trade tariffs on goods produced or manufactured in Russia or Belarus. This measure serves as symbolic support for Ukraine, with a negligible increase in revenue over the next five years.

The Economy

Budget deficit

The underlying cash balance is projected to be a deficit of $42.1 billion in 2025-26, with an improvement expected in the following years, though the deficit will persist for several years. Debt is also projected to rise, increasing from 18.4% of GDP in 2023-24 to an estimated 21.5% in 2025-26, and reaching 23.1% by 2028-29.

Economic growth

Australia’s economy is expected to grow gradually, at 2.25% in 2025-26 and 2.5% in 2026-27. The direct impact of Ex-Tropical Cyclone Alfred on economic activity is estimated to reduce GDP by up to 0.25%.

Employment

The unemployment rate remains low, the participation rate is elevated, and employment has increased by over one million people since May 2022, with around 80% of the jobs created in the private sector since the June quarter of 2022. Unemployment is projected to peak at 4.25%.

Wages

Annual real wages have increased for five consecutive quarters and are forecast to grow by 0.5% in 2024-25. The Wage Price Index (WPI) grew by 3.2% through the year to the December quarter of 2024 and is expected to grow by 3% through the year to the June quarter of 2025, with a further increase of 3.25% to June 2026.

Inflation

Inflation is expected to be 2.5% through the year to the June quarter of 2025. The moderation in inflation was supported by cost-of-living relief and a decline in petrol prices toward the end of 2024. Electricity rebates and the indexation of rent assistance (both Commonwealth and State) reduced headline inflation by 0.75% through the year to the December quarter of 2024.

Global tensions

Economically, trade tensions have heightened global uncertainty, with global growth already subdued. The indirect impact of tariffs on Australia is estimated to be nearly four times greater than the direct effect, reflecting the significant trade flows between Australia, China, and the United States. If retaliatory tariffs occur, they would further exacerbate losses in real GDP.