Government delivers federal budget ahead of looming election

Chalmers handed down his fourth budget on Tuesday night, unveiling a range of reforms aimed a building resilience in the economy and easing cost of living pressures.

New tax cuts for all taxpayers

This year's budget announced a fresh round of tax cuts for all taxpayers, which will be delivered over a two year period.

From 1 July 2026, the 16 per cent tax rate, which applies to taxable income between $18,201 and $45,000, will be reduced to 15 per cent.

From 1 July 2027, this tax rate will be reduced further to 14 per cent.

The Budget papers said the tax cuts would see a worker on average earnings receive a new tax cut of $268 in 2026–27 and $536 per year from 2027–28, compared to 2024–25 tax settings.

"Combined with the first round of tax cuts, they will receive a total tax cut of $1,922 in 2026–27 and $2,190 per year from 2027–28, compared to 2023–24 tax settings," the papers said.

"In 2027–28, the average combined annual tax cut across all taxpayers is expected to be $2,548, or around $50 per week."

The government said the combined tax cuts would allow people to keep more of what they earn, "boosting nominal household disposable income by 1.9 per cent by 2027–28".

"The Government’s combined tax cuts are also expected to support labour force participation, increasing total hours worked by about 1.3 million hours per week compared to 2023–24 tax settings, equivalent to more than 30,000 full time jobs," the Budget papers said.

"This increase is mostly driven by women, who are expected to increase their labour supply by 900,000 hours compared to 2023–24 tax settings."

The Australian Council of Trade Unions welcomed the announcement, stating that the two new tax cuts will benefit low-income workers, women and young people the most.

Combined with the first round of tax cuts, this will see tax cuts of around $50 a week for a worker on average wages, or $2,548 a year, it said.

“Tax cuts, combined with wages continuing to rise, means this Budget delivers higher incomes for workers and their families," said ACTU president Michele O’Neil.

The Committee for Economic Development said while the tax cuts will be welcomed by households, they fail to address the ongoing concerns around bracket creep.

“All sides of politics must start the conversation with Australians about our tax system to lay the foundations for proper reform," said CEDA Chief Economist Cassandra Winzar.

“Current arrangements are unsustainable and deeply unfair to young people."

Chartered Accountants Australia and New Zealand (CA ANZ) agreed that while the tax cuts were a welcome announcement, further work needed to address bracket creep.

“We agree with the Treasurer – Australians should keep more of what they earn and two additional tax cuts for Australian taxpayers is an important step in the right direction," said Franks.

"There is still a lot of work to be done to address bracket creep and improve equity in the tax system, especially for future generations.

“As we head to the polls, we again urge both major parties to commit to a roadmap for tax reform,”

Increasing the low-income thresholds for the Medicare levy

The government also plans to increase the Medicare levy low-income thresholds by 4.7 per cent for singles, families, and seniors and pensioners from 1 July 2024.

"This means more than one million Australians on lower incomes will continue to be exempt from paying the Medicare levy or continue to pay a reduced levy rate," the Budget papers said.

Future of $20,000 instant asset write-off threshold uncertain

The Federal Budget, however, did not include an extension of the $20,000 instance asset write off measure for the 2025-26.

The Council of Small Business Organisations Australia said by failing to account for the measure in the budget, the government had left millions of small businesses in limbo about the future of the measure.

“Small business needs certainty when it comes to the Instant Asset Write-Off. Not only is this measure unaccounted for in the budget, but it is yet to even be legislated for this financial year," said COSBOA chief executive Luke Achterstraat.

“In a volatile economic environment, the IAWO should be made permanent to provide an added incentive to invest and improve business.”

CA ANZ Tax, Superannuation and Financial Services Leader Susan Franks said the instant asset write-off was a useful cashflow support and has been extended time and time again, with the extension in the last budget yet to be legislated.

“Small businesses relying on the continuation of the instant asset write off will be disappointed as there is no budget announcement extending it beyond 30 June 2025," said Franks.

“CA ANZ calls upon the Government to make the instant asset write-off permanent and the threshold consistent, to reduce red tape for both business, Government and tax agents.

Increased funding for ATO's tax compliance activities

The government also announced in the Budget that it would provide the ATO with $999 million over four year to extend and expand tax compliance activities.

As part of the additional funding, $717.8 million will be provided over four years from 1 July 2025 for a two-year expansion and a one-year extension of the Tax Avoidance Taskforce.

The budget papers said this will support the ATO’s continued tax compliance scrutiny on multinationals and other large taxpayers.

$155.5 million of the funding will be dedicated to extending and expanding the Shadow Economy Compliance Program to reduce shadow economy behaviour such as worker exploitation, under‑reporting of taxable income, illicit tobacco and other shadow economy activity that enables non‑compliant businesses to undercut competition.

The funding also includes $75.7 million for extending and expanding the Personal Income Tax Compliance Program. This will enable the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance.

$50 million of the funding will be provided over three years from 1 Jul 2026 for extending the Tax Integrity Program.

"This will enable the ATO to continue its engagement program to ensure timely payment of tax and superannuation liabilities by medium and large businesses and wealthy groups," the budget papers said.

The additional funding is estimated to increase receipts by $3.2 billion over five years from 2024–25, and increase payments by $1.4 billion, including an increase in GST payments to the states and territories of $402.6 million and $31.0 million in unpaid superannuation to be disbursed to employees.

Ban on non-compete clauses

The government also announced a ban on non-compete clauses for low and middle income workers as part of the budget. The measure is aimed at boosting competition and removing barriers preventing employees from starting their own businesses.

The Budget papers said the move would free many Australian workers to move to more productive, higher‑paying jobs and start their own business.

"The government will also close loopholes in competition law that allow businesses to make arrangements that cap workers’ pay and conditions without the knowledge and agreement of affected workers, or block staff from being hired by competitors," the papers said.

Previously announced measures

The Albanese government had already announced a raft of spending commitments in the lead up to the Budget, including a $8.5 billion investment in Medicare.

It had also previously announced on the weekend in would provide an additional $1.8 billion in energy bill relief for every household and small business. This will see households and around one million small businesses receive two $75 rebates directly off their electricity bills through to 31 December 2025.

Minister for Housing and Homelessness Clare O’Neil also announced on Saturday (22 March) Labor would increase the income caps for the Help to Buy scheme from $90,000 to $100,000 for single applicants and $120,000 to $160,000 for joint applicants or single parents.

Uncertain economic environment ahead

BDO Tax Technical National Leader Lance Cunningham said the latest budget highlights two of the key issues currently facing Australia's economy.

"We've got two issues at the movement, commodity prices are dropping and we've also got the uncertainty in global markets caused by wars and the threat of American tariffs which is unsettling lots of economies around the world," said Cunningham.

"We don't really know how that's going to go, particularly when Donald Trump keeps changing his mind as to how they're going to be.

"It's a bit concerning that we're heading into uncertain times but hopefully [Australia] will be able to ride it through."

CA ANZ chief economist Richard Holden said the budget's economic growth forecast were "arguably bullish in a world marked by global uncertainty".

The budget's economic growth forecast predicts growth of 1.5 per cent in 2024-25, 2.25 per cent in 2025-26 and 2.5 per cent in 2026-27.

Professor Holden noted that President Donald Trump is set to announce a new wave of tariffs on 2 April, on top of the existing disruptions to global supply chains that have already occurred, and the substantial uncertainty about European security arrangements.

The underlying deficit for the 2024-25 fiscal year came in at $28.3 billion. Over the total period of the forward estimates the underlying deficits total $179.5 billion.

However, Holden noted that that total actual “headline” deficits over the forward estimates are considerably larger, coming in at $283.4 billion.

“In the long run, the only way to deal with a deficit is by increasing taxes or reducing spending, so this is the key figure that will drive major policy decisions, whoever is in government after the election,” Professor Holden said.