The standout announcement in the Federal Budget 2025–26 was the introduction of personal income tax cuts. While they make for an eye-catching headline, the actual savings are modest up to $268 in the 2026–27 financial year, increasing to a maximum of $536 from 2027–28 onwards.

At the same time, the Australian Taxation Office (ATO) is set to receive nearly $1 billion in additional funding to extend and strengthen tax compliance efforts.

Key Budget Measures Still in Limbo

Two previously announced measures remain in the Australia Budget 2025–26, despite not yet being passed by Parliament:

• A 30% tax on future earnings from superannuation balances above $3 million

• The $20,000 instant asset write-off for small businesses in 2024–25

Both measures have stalled in Parliament. Unless they are approved before Parliament dissolves for the upcoming federal election, they are expected to lapse and will no longer proceed.

Budget Built for Voter Appeal

The 2025–26 Federal Budget focuses on voter appeal, with over $7 billion in new spending measures for the year and more than $20 billion committed over five years. Many of these initiatives extend previously announced programs, offering continued support across various sectors.

Key Initivaties Include:

Energy

• $1.8 billion allocated to extend the $150 energy bill rebate until the end of 2025, providing financial relief to Australian households.

Healthcare

• $8.5 billion for Medicare: This funding will support increased Medicare payments, the establishment of 50 new urgent care clinics, and the introduction of a bulk-billed GP service for easier access to healthcare.

• $1.8 billion over 5 years: Aimed at reducing the cost of medicines through the Pharmaceutical Benefits Scheme, ensuring Australians can access affordable treatments.

• $240 million for women’s health: Focused on improving reproductive health services and supporting women through menopause care.

Education

• The government is investing $500 million to provide a 20% reduction in HECS-HELP debt for students, alongside a revised repayment schedule to lower the amount due. These changes will come into effect on 1 July 2025, easing the financial burden for students.

Housing

• A $800 million investment will expand the ‘Help to Buy’ scheme, making homeownership more accessible by reducing the deposit size required. The government will co-buy with eligible buyers, helping more Australians get onto the property ladder.

Families

• From 1 January 2026, families with young children will benefit from three days of subsidised childcare each week, based on income, replacing the current Child Care Subsidy activity test.

Lifestyle

• Starting in August, the excise duty on beer will be frozen for the next two years, helping to maintain affordability for consumers.

Trade tensions have significantly increased global uncertainty, impacting economic stability worldwide. With global growth already sluggish, the indirect impact of tariffs on Australia is projected to be nearly four times greater than the direct effect. This highlights the importance of trade flows between Australia, China, and the United States.

Looking ahead, Australia’s economy is expected to grow at a modest rate of 2.25% in 2025–26 and 2.5% in 2026–27.

However, the 2025–26 Federal Budget will see a deficit of -$42.1 billion, with only a slight improvement forecast for the following year, though the deficit will persist.

Personal Income Tax Cuts for Individuals & Families

Modest Two-Stage Tax Cut

The Australian Government has announced a modest tax cut for all taxpayers, set to take effect in two stages, starting 1 July 2026 and again from 1 July 2027.

• Tax Reduction for $18,201-$45,000 Bracket: The tax rate for this income range will drop from the current 16% to 15% starting 1 July 2026, then to 14% from 1 July 2027.

• Cost & Savings: This measure will cost $648 million over four years, with taxpayers in this bracket saving up to $268 in the 2026-27 financial year and up to $536 from 2027-28 onwards.

Resources: Fact Sheet: Personal Income Tax Cuts

Medicare Levy Thresholds Increased for Low-Income Earners

From 1 July 2024, the Medicare levy low-income threshold will rise, offering relief to low-income earners who are currently exempt from paying the levy. This change means that low-income earners will pay less when filing their income tax returns for the 2024-25 financial year. The increased thresholds will result in a cost of $648 million over five years.

$150 Energy Bill Relief

Effective from 1 July 2025

Australian households and small businesses will receive an automatic $150 credit towards their energy bills. This relief will be provided in quarterly instalments until 31 December 2025.

The energy bill rebate extension will cost $1.8 billion over the next two years, helping ease the financial burden on families and businesses.

Resources: More energy bill relief for Australian households and small businesses.

Foreign Resident CGT Amendments Delayed

The proposed changes to the way foreign residents engage with Australia’s tax system were initially set to take effect from 1 July 2025. However, these amendments have now been delayed.

The revised start date for the capital gains tax (CGT) amendments affecting foreign residents is now set for 1 October 2025 at the earliest. Depending on how quickly the reforms pass through Parliament, the date may be pushed further back.

The key changes include:

• Broader CGT Scope: The amendments will expand the range of assets subject to CGT when foreign residents dispose of them.

• Share and Trust Rules: The new rules will clarify whether the sale of shares in a company or units in a trust is subject to CGT.

• Transaction Disclosure: Foreign residents will be required to disclose transactions involving shares or trust interests valued at $20 million or more to the ATO before they occur.

For more details, visit the ATO Strengthening the Foreign Resident Capital Gains Tax Regime.

Australia Implements 2-Year Ban on Foreign Ownership of Established Homes

From 1 April 2025, the Australian Government has introduced a two-year ban on foreign buyers, including temporary residents and foreign-owned companies, purchasing established homes. This measure aims to curb ‘land banking’ and ease pressure on the housing market. While the ban is in place for two years, there are limited exceptions to the rule.

Resources: Australian Taxation Office (ATO) – Foreign Ownership of Established Dwellings

MIT Amendments Delayed

The extension of the cleaning building management investment trust (MIT) withholding tax concession, which was originally set to begin on 1 July 2025, has now been postponed. It will take effect from the first 1 January, 1 April, 1 July, or 1 October following the Act’s Royal Assent.

In addition, the Government will amend tax laws to clarify MIT arrangements, ensuring legitimate investors can continue to access concessional withholding tax rates. These changes will apply to fund payments made from 13 March 2025 and will align with the Australian Taxation Office’s (ATO) increased focus on preventing misuse, as outlined in Taxpayer Alert 2025/1.

‘Help to Buy’ Scheme Extended

The Government’s ‘Help to Buy’ scheme helps first-time buyers by reducing the deposit required to purchase a home. Through this initiative, Housing Australia provides eligible participants with an equity contribution. This contribution can cover up to 30% of the purchase price for an existing home and up to 40% for a new property essentially, the Government provides the funds and takes a stake in your home.

Initially, the scheme had income limits: $90,000 for singles and $120,000 for joint applicants. The latest Budget update raises these thresholds to $100,000 for singles and $160,000 for couples. Additional eligibility conditions apply.

Currently, the scheme is unavailable to new applicants.

Business & Employers

Non-Compete Clauses to Be Banned

Effective from 2027

The Australian Government will ban non-compete clauses for low and middle-income earners, specifically those earning below the Fair Work Act’s high-income threshold, currently set at $175,000.

In April 2024, Treasury released a discussion paper on Worker Non-Compete Clauses and Other Restraints. The review stated that, “The direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentivises workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.”

As part of a broader effort to enhance workplace fairness and competition, the Government also plans to:

• Ban wage-fixing agreements where businesses collude to cap worker pay and conditions without staff consent

• Prohibit ‘no-poach’ agreements, which prevent companies from hiring each other’s employees

Learn more: Cracking down on non-compete clauses to boost wages and productivity

Beer Tax Freeze and Boost for Alcohol Producers

Effective Dates:

• Draught beer excise pause: August 2025

• Other alcohol support measures: From 1 July 2026

As part of the 2025–26 Federal Budget, the Australian Government will pause indexation on draught beer excise and customs duty rates for two years starting in August 2025. This means beer prices will not rise due to tax increases during this period, offering welcome relief to both brewers and beer drinkers.

In addition, alcohol producers will benefit from an increase in the Excise Remission Scheme cap, which rises from $350,000 to $400,000 per year, starting 1 July 2026. This will apply to all eligible brewers, distillers, and wine producers, providing greater financial support across the industry.

Trade Tariffs on Russia and Belarus Extended

The Government has also extended the 35% additional trade tariffs on goods imported from Russia and Belarus. While this move is expected to generate minimal revenue, it sends a strong symbolic message of support for Ukraine amidst ongoing geopolitical tensions.

Government and Regulators

Almost $1 Billion Boost for ATO Tax Compliance

Effective from 1 July 2025

The Australian Government will allocate $999 million over four years to strengthen the Australian Taxation Office’s (ATO) compliance efforts. This funding aims to enhance tax integrity and ensure fair contributions from all taxpayers.

The investment will support the expansion of several key compliance programmes, including:

• Tax Avoidance Taskforce

• Shadow Economy Compliance Programme

• Personal Income Tax Compliance Programme

• Tax Integrity Programme (focusing on medium to large businesses and high-wealth individuals)

These initiatives are expected to generate a return of $3.2 billion, delivering more than triple the Government’s investment.

$700 Million in Contractor Cost Cuts to Boost Budget Savings

The Australian Government plans to significantly reduce its reliance on external consultants, contractors, and labour hire. As part of the ongoing cost-cutting measures, the 2025–26 Budget forecasts savings of $718 million by 2028–29 through continued reductions in outsourced labour.

The Economy

Growth

Australia’s economy is forecast to grow modestly, with GDP expected to increase by 2.25% in 2025–26 and 2.5% in 2026–27. However, the aftermath of Ex-Tropical Cyclone Alfred is projected to reduce economic activity by up to 0.25% of GDP.

Return to Deficit

After a brief surplus, Australia is returning to deficit. The underlying cash balance is forecast to be -$42.1 billion in 2025–26, with the budget remaining in the red for several years to come.

National Debt

Public debt is also on the rise, increasing from 18.4% of GDP in 2023–24 to a projected 21.5% in 2025–26, and expected to reach 23.1% by 2028–29.

Employment

Australia’s unemployment rate remains low, with strong workforce participation. Since May 2022, more than one million jobs have been added to the economy, with around 80% of new roles created in the private sector since the June quarter 2022.

Unemployment is forecast to peak at 4.25%, reflecting a resilient labour market amid economic challenges.

Wages

Real wages in Australia have increased for five consecutive quarters, and this upward trend is set to continue. In 2024–25, real wages are forecast to grow by 0.5%, reflecting gradual recovery in household incomes.

The Wage Price Index (WPI) rose by 3.2% over the year to the December quarter 2024. It’s projected to grow by 3% through to the June quarter 2025, and 3.25% by June 2026.

This steady wage growth is a positive sign for workers amid ongoing cost-of-living pressures.

Inflation

Inflation is expected to ease, reaching 2.5% through the year to the June quarter 2025, moving closer to the Reserve Bank’s target range.

Global Trade Tensions

Rising global trade tensions continue to fuel uncertainty across international markets. With global growth already subdued, Australia’s economy is feeling the pressure.

The indirect effects of international tariffs are significant estimated to be nearly four times greater than the direct impact on Australia. This reflects the high volume of trade between Australia, China, and the United States.

If retaliatory tariffs are introduced, they could further reduce real GDP, compounding the challenges faced by Australian exporters and the broader economy.

The ‘Allied Business Accountants’

Our expert team at Allied Business Accountants is here to help you navigate the latest budget measures and maximise opportunities, while minimising potential risks.

We understand that the details matter. If you need assistance or have any questions, we’re ready to support you.

Get in touch with us today at +61 3 9097 4050 or send your enquiries to info@alliedaccountants.com.au.