The Government’s centrepiece of the 2025-26 Federal Budget was personal income tax cuts. Income tax cuts are a dazzling headline, but in reality they deliver a tax saving of up to $268 in the 2026-27 year, and a tax saving of up to $536 from the 2027-28 year.
At the same time, the Australian Taxation Office has been allocated almost $1bn in funding to extend and enhance its compliance programs.
Two previously announced measures of note that have not passed Parliament but remain in the Budget are:
- Tax on super accounts above $3m (a 30% tax on future earnings for superannuation balances >$3 million); and
- The $20,000 small business instant asset write-off for 2024-25.
Both of these measures have stalled and assuming they are not approved in the final days of Parliament, will lapse when an election is called.
Budget 2025-26 is a budget for voter appeal with over $7bn in additional spending measures in 2025-26 and over $20bn across five (5) years. Most measures extend previously announced and Budgeted items for another year.
Key initiatives include:
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, and a bulk
billed GP service.
– $1.8bn over five (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 before indexation is applied on
1 July 2025, 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 (3) 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 two (2) years.
Economically, trade tensions have magnified global uncertainty; global growth is already subdued. The indirect effect of tariffs is estimated to be nearly four (4) times as large as the direct effect on Australia, reflecting the relative importance of affected trade flows between Australia, China, and the United States.
Australia’s economy is expected to grow, albeit slowly at 2.25% in 2025-26 and 2.5% in 2026-27.
The Budget will be in deficit at -$42.1bn in 2025-26, before improving marginally but remaining in the red.
Individuals & Families
Tax cuts for individual taxpayers
Commencing from 1 July 2026 (i.e., from the 2027 income year), the Government will deliver new tax cuts to individual taxpayers.
The personal income tax rates (excluding the Medicare levy) for the 2025 and 2026 income years are set out in the following table, along with the proposed changes to tax rates for the 2027 and 2028 income years:
Increased Medicare levy low-income thresholds
The Medicare levy low-income threshold exempts low-income earners from having to pay the levy. From 1 July 2024, the threshold for the exemption will increase.
The change will mean low-income earners will pay less when they lodge their income tax returns for 2024-25.
The Medicare levy low-income thresholds for single individuals and families for the 2025 income
year, together with the comparative thresholds for the 2024 income year, will be as follows:
For each dependent child or student, the family income thresholds will increase by a further $4,216 (up from $4,027).
Foreign resident CGT amendments delayed
From 1 July 2025, the way in which foreign residents interact with the tax system were scheduled to come into effect.
The start date for proposed amendments to the capital gains tax (CGT) rules for foreign residents has now been delayed until 1 October 2025 at the earliest, and potentially later depending on the passage of the reforms through Parliament.
The changes would:
- broaden the range of assets subject to CGT for foreign residents when they dispose of them;
- amend the rules which determine whether the sale of shares in a company or units in a trust are subject to CGT; and
- require foreign residents to disclose transactions involving shares or trust interests with a value of at least $20 million to the ATO before they occur.
Restricting Foreign Ownership of Housing
From 1 April 2025, the Government has banned foreign and temporary residents, and foreign-owned companies, from purchasing established dwellings to prevent ‘land banking’. The ban applies for two (2) years subject to some limited exceptions.
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.
Student Loans
All outstanding Higher Education Loan Program (‘HELP’) and other student debts will be reduced by 20%, subject to the passage of legislation. The 20% reduction is in addition to the recent indexation reforms.
Earning wage before individuals are required to start paying back their loans will increase, from $54,435 in the 2025 income year to $67,000 in the 2026 income year.
Energy bill relief
Households and small businesses will receive two (2) $75 bill rebates directly off their electricity bills between 1 July 2025 and 31 December 2025 to provide cost-of-living relief.
‘Help to Buy’ scheme for first home buyers
Under the Help to Buy scheme, the Government will:
- provide an equity contribution of up to 40% to support eligible home buyers to purchase a home with a lower deposit and a smaller mortgage; and
- boost the scheme by increasing income caps from $90,000 to $100,000 for individuals and from $120,000 to $160,000 for joint applicants and single parents (additional conditions apply).
At this time, the program is not currently available to applicants and a start date has not been determined.
Business & Employers
No extension of the $20,000 instant asset write-off threshold
The Government has not announced any extension to the temporary $20,000 instant asset write-off threshold for the 2025-26 financial year. In theory, the threshold will therefore revert to just $1,000 from 1 July 2025. This means that small businesses have a very limited opportunity to take advantage over the next three (3) months, assuming the Government can get its $20,000 threshold through Parliament. The other political parties are generally in support of increasing the threshold to at least $30,000 and making the increase permanent.
Non-compete clauses to be banned
The Government has announced that it will ban non-compete clauses for low and middle-income employees (under the Fair Work Act high income threshold is currently $175,000) and 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.
Support for Hospitality Sector and Alcohol Producers
There will be a pause to indexation on draught beer excise and excise equivalent customs duty rates for a two (2) year period, from August 2025.
Under this measure, biannual indexation of draught beer excise and excise equivalent customs
duty rates due to occur in August 2025, February 2026, August 2026 and February 2027 will not
occur. Biannual indexation will then recommence from August 2027.
Currently, all eligible brewers and distillers can receive an excise remission under the Remission
Scheme up to a cap of $350,000. All eligible wine producers can currently receive a WET rebate
up to a cap of $350,000 under the Producer rebate. This measure will increase the caps for all
eligible brewers, distillers and wine producers to $400,000 per financial year, from 1 July 2026.
Government & Regulators
ATO compliance
The Government has set aside $999m over four (4) years for the ATO to expand its compliance programs:
- Tax Avoidance Taskforce
- Shadow Economy Compliance Program
- Personal Income Tax Compliance Program
- Tax Integrity Program (medium and large businesses and wealthy groups)
The compliance programs are expected to deliver a threefold return of $3.2bn.
$700 external contractor cost cutting
The Government intends to further pair back its use of consultants, contractors and labour hire. The budget estimates that the Government will save $718m in 2028-29 by continuing cuts to external labour.
Further Assistance
Feel free to contact our office for further details about any of the above 2025-26 budget announcements.
You can also visit the Federal Government Budget website for more information.
