2025-26 Federal Budget Summary
On Tuesday 25 March 2025, Treasurer Jim Chalmers delivered the 2025-26 Federal Budget. With an election on the horizon, the Federal Government has balanced cost-of-living relief with economic stability, while tax reforms remain limited.
In this edition of FMA insights, we have summarised the key budget takeaways for individuals, families and businesses. While the Government indicated some support for businesses, this year’s Budget included little in terms of business tax measures or superannuation reform.
We have also included a snapshot of the economic outlook underpinning the budget handed down.
Read on for the full update.
The Economy
Growth
Australia’s economy is expected to grow, albeit slowly, at 2.25% in 2025-26 and 2.5% in 2026-27. The direct impact of Ex-Tropical Cyclone Alfred on economic activity is estimated to be up to 0.25% of GDP.
We’re Back in Deficit
The underlying cash balance will be a deficit at -$42.1bn in 2025-26, before improving but remaining in the red for several years. Debt is also higher, rising from 18.4% of GDP in 2023-24 to an estimated 21.5% in 2025-26, rising to 23.1% by 2028-29.
Employment
The unemployment rate has stayed low, the participation rate remains elevated, and employment has grown by more than one million people since May 2022 with around 80% of jobs created in the private sector since the June quarter 2022.
Unemployment is expected to peak at 4.25%.
Wages
Annual real wages have grown for five consecutive quarters and are forecast to grow by 0.5% in 2024-25.
The Wage Price Index (WPI) grew by 3.2% through the year to the December quarter 2024 and is expected to grow by 3% through the year to the June quarter of 2025 and 3.25% to June 2026.
Inflation
Inflation is expected to be 2.5% through the year to the June quarter 2025. The moderation of inflation was helped by cost of living relief and a decline in petrol prices towards the end of 2024. Electricity rebates and indexation of rent assistance (Commonwealth and State) reduced headline inflation by 0.75% through the year to the December quarter of 2024.
Global Tensions
Economically, trade tensions have magnified global uncertainty. Global growth is already subdued. The indirect effect of tariffs is estimated to be nearly four times as large as the direct effect on Australia, reflecting the relative importance of affected trade flows between Australia, China, and the United States. Retaliatory tariffs, if they occur, will only amplify losses in real GDP.
Key Budget Takeaways
For Individuals & Families
Two Stage Personal Income Tax Cut
The Government will provide a “modest” tax cut to all taxpayers from 1 July 2026 and again from 1 July 2027.
The tax rate for the $18,201-$45,000 tax bracket will reduce from its current rate of 16%, to 15% from 1 July 2026, then to 14% from 2027-28 at a cost of $648 million over four years. The saving from the tax cut represents a maximum of $268 in the 2026-27 year and $536 from the 2027-28 year.
Proposed Personal Income Tax Threshold:
Medicare Levey Thresholds Increased for Low-Income Earners
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 threshold changes come at a cost of $648 million over 5 years.
$150 Energy Bill Relief
Australian households and eligible small businesses with electricity bills may receive up to $150 in energy bill rebates from 1 July 2025 to the end of 2025. Rebates will be automatically applied to your electricity bill in two $75 quarterly instalments. Most customers do not need to take any action to receive rebates.
Education
$500 million dollars was budgeted to provide a 20% cut to HECS-HELP debt for students, and a realignment of the repayment schedule to reduce the amount required to be paid from 1 July 2025.
‘Help to Buy’ Program Extended
The Government’s ‘Help to Buy’ program reduces the deposit required to buy a home by providing an equity contribution. Under the program, Housing Australia provides eligible participants with a Commonwealth equity contribution of up to 30% of the purchase price of an existing home and up to 40% of the purchase price of a new home. That is, they will give you the money and take a stake in your home.
Originally, to be eligible for the program, the income threshold for a single was $90,000 and, for joint participants, $120,000. The Budget increases this threshold to $100,000 and $160,000 respectively. Additional conditions apply.
The program is not currently available to applicants.
For Businesses & Employers
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). Non‑compete clauses are conditions in employment contracts that prevent or restrict an employee from moving to a competitor.
The Government is also making changes to competition law to prevent businesses from:
Fixing wages by making anti‑competitive arrangements that cap workers’ pay and conditions, without the knowledge and agreement of affected workers.
Using ‘no‑poach’ agreements to block staff from being hired by competitors.
MIT Amendments Delayed
The extension of the cleaning building management investment trust (MIT) withholding tax concession was due to commence from 1 July 2025. This has now been delayed until the first 1 January, 1 April, 1 July or 1 October after the Act receives Royal Assent.
The Government will also amend the tax laws to clarify arrangements for MITs to ensure that legitimate investors can continue to access concessional withholding rates. The changes will apply to find payments from 13 March 2025 and will complement the ATO’s increased focus in this area to prevent misuse.
Beer Tax Paused
Indexation on the draught beer excise and excise equivalent customs duty rates will be paused for two years from August 2025. This just means that the price of beer won’t go up because of tax.
Support is also provided under the excise remission scheme for manufacturers of alcoholic beverages increasing caps for all eligible brewers, distillers and wine producers to $400,000 per financial year, from 1 July 2026 (up from $350,000).
For Foreign Investors
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. These changes have now been delayed.
The start date for proposed amendments to the capital gains tax (CGT) rules for foreign residents has 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.
Two Year Ban on Foreign Ownership of Established Homes
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 2 years but is subject to some limited exceptions.
For the ATO & ASIC
Almost $1bn to the ATO for Tax Compliance
The Government has set aside $999 million over 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 $3.2 billion.
$3m to ASIC
The Government will provide $3 million over 4 years to the Australian Securities and Investments Commission (ASIC) to enhance its data analytics capabilities. This investment aims to strengthen enforcement efforts against illegal phoenixing, with a particular focus on the construction sector, which is considered more vulnerable to this practice.
As always the FMA team are here to help. If you have queries regarding any of the content in this newsletter, please do no hesitate to contact our office directly on 02 9540 6888 or via email at info@fmapartners.com.au.
Disclaimer: The material and contents provided are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. Please do not hesitate to contact the team at FMA Partners to discuss further.