Treasurer Jim Chalmers has handed down his fourth federal budget, laying the groundwork. With an election nearing, it is questionable whether the changes suggested will see the light of day.
This is a budget light on detail – let’s take a deeper dive…
Following two consecutive surpluses, the 2024-25 budget is in deficit at $27.6 billion, growing to $42.1 billion in 2025/26. Gross debt is expected to exceed one trillion during 2025-26.
This budget focused on cost-of-living relief, health, housing, education, and bringing forward defence spending but not increasing defence spending. A surprise tax cut of 1% to the $18,201 – $45,000 tax bracket for all Australian taxpayers in 2026 and another 1% in 2027 was also included in the mix. We expect there will be more spending announcements once we go into formal election mode.
PERSONAL INCOME TAX – NEW TAX CUTS FOR EVERY AUSTRALIAN TAXPAYER
The Government will deliver new tax cuts to every Australian taxpayer starting 1 July 2026. These tax cuts are in addition to the first round of tax cuts for every taxpayer that the Government legislated last year, which have been rolling out since 1 July 2024. The new tax cuts will provide a small additional amount of cost-of-living relief. However, this only applies to the first tax bracket between $18,201 and $45,000.
Under the Government’s new tax cuts:
• From 1 July 2026, the 16 per cent rate ($18,201 – $45,000) will be reduced to 15 per cent.
• From 1 July 2027, the $18,201 – $45,000 tax rate will be reduced further to 14 per cent.
• Each 1% tax cut for this bracket equates to $268 per annum.
PERSONAL INCOME TAX – INCREASING THE MEDICARE LEVY LOW-INCOME THRESHOLDS
The Government will increase the Medicare levy low-income thresholds for singles, families, seniors, and pensioners from 1 July 2024 to provide cost-of-living relief.
The increase ensures that low-income individuals continue to be exempt from paying the Medicare levy or pay a reduced levy rate;
• The threshold for singles will be increased from $26,000 to $27,222.
• The family threshold will be increased from $43,846 to $45,907.
• For single seniors and pensioners, the threshold will be increased from $41,089 to $43,020.
• The family threshold for seniors and pensioners will be increased from $57,198 to $59,886.
• The family income thresholds will increase by $4,216 for each dependent child or student, up from $4,027.
ENERGY BILL RELIEF FUND EXTENSION
The Government will provide $1.8 billion in 2025–26 to continue non-means-tested energy bill rebates of $75 per quarter for eligible Australian households and small businesses until 31 December 2025 to provide cost-of-living relief. This measure extends the 2024–25 budget measure.
CHEAPER MEDICINE
The Government will provide $784.6 million over four years from 2025–26 to lower the Pharmaceutical Benefits Scheme (PBS) general patient co-payment from $31.60 to $25.00 on 1 January 2026. The Government will also provide $1.8 billion over five years from 2024–25 for new and amended listings on the Pharmaceutical Benefits Scheme (PBS) and the Repatriation Pharmaceutical Benefits Scheme.
STRENGTHENING MEDICARE VIA SUPPORTING BULK BILLING
The Government will provide additional funding of $8.4 billion over five years from 2024–25 (and $2.5 billion per year ongoing) to increase access to bulk billing, including;
• $7.9 billion over four years from 2025–26 (and $2.4 billion per year ongoing) to expand all Australians’ eligibility for bulk billing incentives and introduce the new Bulk Billing Practice Incentive Program for general practices if they bulk bill every visit under Medicare.
RESTRICTING FOREIGN OWNERSHIP OF HOUSING
The Government will take action to ensure foreign investment in housing supports the Government’s broader agenda to boost Australia’s housing supply by;
• Banning foreign persons (including temporary residents and foreign-owned companies) from purchasing established dwellings for two years from 1 April 2025 unless an exception applies.
• Exceptions to the ban will include investments that significantly increase housing supply or support the availability of housing on a commercial scale, and purchases by foreign-owned companies to provide housing for workers in certain circumstances.
• Providing the Australian Taxation Office (ATO) $5.7 million over four years from 2025–26 to enforce the ban.
• Providing the ATO and Treasury $8.9 million over four years from 2025–26 and $1.9 million per year ongoing from 2029–30 to implement an audit program and enhance their compliance approach to target land banking by foreign investors.
STUDENTS AND TRADIES
Outstanding university student loan balances will be reduced by 20% this year, subject to passing parliament, reducing the debt for 3 million people and adding $16 billion to the Budget deficit.
To encourage more people to enter the construction trades, incentives for completing their training will be increased to $10,000 for apprentices in the building industry.
SMALL BUSINESS, BUSINESS, SUPERANNUATION AND INDUSTRIAL RELATIONS
There was nothing in the budget for small businesses or businesses in general. The Government has proposed measures to end non-compete clauses for some 3 million workers, making it easier for people to join rival firms and solicit clients from their existing employers. This is a questionable measure and may disincentivize employers in professional services firms from employing professionals who could become potential rivals.
Superannuation changes were notably absent so we can all breathe a sign of relief although the $3 million superannuation balance tax remains in the Senate not having received approval.
This budget is a mixed bag. I really don’t think the Government expected to deliver the budget, but Cyclone Alfred put paid to that.
As I said at the start, it’s ‘Budget Lite’, with many of the measures probably not to see the light of day with a new Parliament following an impending Federal election.