2025 - 2026 Federal Budget

The Government’s much-anticipated 2025-26 Federal Budget delivered a mix of bold moves and modest changes, with a central focus on personal income tax cuts, extended energy relief, and continued healthcare and housing support. But while the tax cuts make for a headline-worthy announcement, the reality is a bit less dazzling than the numbers suggest.

Tax Cuts and What They Mean for You

The star of the budget was the personal income tax cuts. These cuts are expected to reduce tax bills, but the savings are quite modest. Starting from July 1, 2026, individuals in the $18,201 to $45,000 tax bracket will see a reduction in their tax rate from 16% to 15%. This will be followed by another reduction to 14% in 2027-28. In real terms, the maximum tax savings will be $268 in 2026-27 and $536 in 2027-28—hardly a life-changing amount.

At the same time, the Australian Taxation Office (ATO) will receive an additional $1 billion to ramp up its compliance programs. This investment aims to combat tax avoidance and ensure the wealthy and large businesses pay their fair share, likely making tax returns a bit more scrutinized for everyone.

Stalled Measures: The Super Tax and Instant Asset Write-off

Two key proposals that made headlines previously, the super tax on balances above $3 million (a 30% tax on future earnings) and the $20,000 instant asset write-off for small businesses, remain stalled in Parliament. If they don’t pass by the time an election is called, they will lapse—meaning these reforms may never see the light of day.

Voter-Friendly Measures and Budget Spending

The 2025-26 Budget was also designed with voter appeal in mind, promising over $7 billion in new spending for the upcoming year, and a total of $20 billion over the next five years. Many of these funds are extensions of previously announced initiatives, but several key programs stand out:

• Energy: A $150 energy bill rebate extension for households and small businesses will run from July 1, 2025, through to December 2025. This will cost the government $1.8 billion over two years.

• Healthcare: A significant boost of $8.5 billion will go into Medicare, with increases to Medicare payments, the opening of 50 new urgent care clinics, and a bulk-billed GP service. There’s also $1.8 billion for cheaper medicines under the Pharmaceutical Benefits Scheme and $240 million for women’s health, particularly for reproductive health and menopause care.

• Education: The Government will spend $500 million to reduce HECS-HELP debt by 20% for students and change repayment schedules to lessen the burden starting July 1, 2025.

• Housing: The ‘Help to Buy’ scheme will receive $800 million in funding to reduce the deposit required for first-time homebuyers. This includes a government contribution of up to 30% for existing homes and 40% for new homes.

• Families: Starting January 2026, the Government will introduce three days of subsidized childcare for low to middle-income families with young children, replacing the previous activity test system for the Child Care Subsidy.

• Lifestyle: Beer lovers have a small win, with a two-year freeze on the beer excise starting August 2025.

Economic Outlook: Slow and Steady

The Australian economy is expected to grow at a modest rate of 2.25% in 2025-26 and 2.5% in 2026-27, with global uncertainties and trade tensions weighing heavily on the outlook. The global economy is already subdued, and Australian businesses could face challenges due to tariffs, especially given the ongoing tensions between the U.S., China, and Australia.

The Budget also predicts that Australia will remain in a deficit of $42.1 billion for 2025-26, with debt rising to 21.5% of GDP by the end of the year. However, the economy is expected to remain resilient, with employment growth continuing and wages showing signs of improvement.

Individuals and Families: A Mixed Bag

In addition to the personal income tax cuts, there are other changes aimed at alleviating the cost of living for individuals and families:

• Medicare levy thresholds will be increased for low-income earners from July 2024, meaning that more people will be exempt from paying the levy.

• There’s also an additional $150 energy bill rebate for households and small businesses, extending relief beyond the initial rebate from July 2025.

• The long-discussed foreign resident CGT amendments have been delayed until October 2025, while the Government has also introduced a two-year ban on foreign ownership of established homes from April 2025, aiming to tackle ‘land banking’ by foreign entities.

Business and Employment: Some Key Announcements

The Government is taking steps to boost wages and productivity with the ban on non-compete clauses for low and middle-income employees (under the $175,000 threshold). This measure aims to make it easier for workers to change jobs and encourage competition within the workforce.

Additionally, beer excise will be paused for two years starting August 2025, while other measures will help wine and alcohol producers, including increased caps on the Excise Remission Scheme for eligible producers from July 2026.

Strengthening the ATO's Compliance Programs

In a move to combat tax avoidance, the Government has allocated $999 million over four years to expand the ATO’s compliance programs, including initiatives targeting high-income earners, large businesses, and the shadow economy. These programs are expected to generate a threefold return, netting $3.2 billion.

Global Tensions and Their Impact

Finally, the Budget acknowledges the ongoing economic risks from global trade tensions, particularly between Australia, China, and the United States. Tariffs, retaliation, and trade disruptions are expected to have a more significant indirect impact on Australia’s economy than direct effects, as trade between these nations continues to play a crucial role.

The 2025-26 Federal Budget brings a range of measures aimed at easing the cost of living, supporting healthcare, and tackling housing affordability. While tax cuts and subsidies are sure to please voters, many of the government’s strategies to reduce fiscal deficits are yet to be fully realized. With modest economic growth and rising global uncertainty, Australia’s economic future looks cautious but steady.

As always, the Wren Christou team is here to help you navigate any of the Budget’s changes, whether you're looking to capitalize on new measures or minimize your tax risks.

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