On Tuesday 25 March, Australian Treasurer, Jim Chalmers, delivered his fourth Federal Budget since the Labor Party came to power in May 2022.
With the next Federal election needing to take place prior to the three-year deadline of 17 May 2025, this Budget was always going to be viewed through the prism of how the announcements made will affect the upcoming campaign.
This Budget was delivered at a time of global economic uncertainty, driven in part by the imposition of a range of tariffs by the United States. These now include tariffs on all steel and aluminium imports into the US, which will directly affect Australian producers.
This uncertainty is likely to impact consumer and business confidence, potentially resulting in a reduction in both personal spending and commercial investment.
The macro-economic background to this Budget statement
According to the Australian Bureau of Statistics, over the 12 months to the end of the December 2024 quarter, the Consumer Prices Index (CPI) was 2.4%, down from 4.1% from the December 2023 quarter. Trading Economics confirmed this is the lowest rate since Q1, 2021.
Interest rates on the other hand have remained stubbornly high, although the Reserve Bank of Australia reduced its base rate to 4.1% in February, which was the first reduction in over a year.
ABC News reported that in his Budget speech, Chalmers revealed that economic growth is forecast to be 1.5% in this financial year, and 2.25% next year.
Unlike the previous two years, the Treasurer was unable to announce a budget surplus, reporting instead a deficit of $27.6 billion in the current financial year, rising to $42 billion in 2025/26.
Read about some of the key Budget announcements that could affect your personal finances and wealth planning.
It’s important to be aware, however, that all these changes will be subject to legislation, with no guarantee that this will pass through parliament before the impending election.
Every taxpayer will enjoy Income Tax cuts
The big surprise in this Budget was the announcement by the Treasurer of cuts to the lowest rate of Income Tax on earnings between $18,201 and $45,000.
- From 1 July 2026, the 16% will be reduced to 15%
- From 1 July 2027, the rate will then be reduced further to 14%.
This means that anyone earning above $45,000 will benefit by $268 in 2026/27, rising to $536 in 2027/28.
The government website confirmed that, when this cut is combined with the previous tax cuts in 2024, an individual on the average wage of $79,000 will be paying $2,190 less Income Tax in 2027-28 than in 2023/24.
Additional energy bill relief
Less of a surprise, as it had been announced in the run-up to the Budget statement, was an extension to the Energy Bill Relief Fund into the 2025/26 financial year starting on 1 July.
This will mean that all eligible individuals and businesses will benefit from a quarterly reduction of $75 in their energy bills to the end of 2025, helping to mitigate the effect of expected energy price increases.
2 important changes to Medicare
The Treasurer confirmed an increase in the Medicare levy low-income threshold of 4.7% from July 2025.
This will mean that a family will need to be earning in excess of $45,907 before being liable for Medicare charges. The equivalent threshold for seniors and pensioners will be increased from $57,198 to $59,886.
Chalmers also confirmed that the cost of patient contributions to prescription charges will be reduced from $31.60 to $25 in January 2026.
He also announced a tripling of the bulk-billing incentive by 2030, which will increase the number of free GP visits.
Restrictions on the foreign ownership of Australian homes
In his Budget statement, the Treasurer confirmed that the government will ban foreigners, including temporary residents and foreign-owned companies, from buying existing residential properties for two years from 1 April 2025.
This will mean that if you are planning to move to Australia, or have recently done so, you won’t be able to purchase an existing property until after 1 April 2027.
There were no major financial planning changes announced
Neither in the Budget statement nor in the full published report was any reference made to changes in the legislation governing key financial planning arrangements, such as superannuation, account-based pensions, or the tax treatment of investment income.
This clearly provides some valuable certainty when it comes to planning your financial future.
A freeze of the indexation on draught beer excise
Let’s end with some good news!
As was indicated before the Budget statement, the Treasurer confirmed that the government will freeze indexation on draught beer excise for two years.
As well as obviously being popular with beer drinkers, this will also be positive news for pubs, and other draught beer outlets.
This will take effect from August 2025.
Get in touch
We will cover any key Budget issues that may affect you at your next annual review, but if you have any particular concerns in the meantime, please get in touch with us.
Please note
These changes are currently only proposals and are subject to legislation.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of ATO legislation and the Budget report, which are subject to change.