Modest tax cuts fall short of meaningful reform

The 2025 federal budget included modest tax relief and more funding to crack down on tax avoidance, but fell short of meaningful tax reform, according to accounting industry groups and the Greens.

The budget’s surprise tax cuts, set to decrease the lowest income tax rate from 16 per cent to 14 per cent from July 2026 to July 2027, were lauded by industry leaders as a step in the right direction. However, many pointed out that they fail to address the long-term effects of bracket creep.

“Australia relies heavily on personal income tax collections to prop up the nation’s revenue and hard-working Australians deserve the two additional tax cuts coming their way, as they continue to face cost-of-living pressures,” Susan Franks, CA ANZ tax, superannuation and financial services leader, said.

“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.”

The tax cuts would see those on an average income ($79,000) receive an additional tax benefit of $268 in 2026–27, and $536 in 2027–28.

“Labor’s tax cuts return bracket creep, increase the financial rewards from work and boost labour supply,” Labor said in a press release.

However, industry leaders have warned that the modest tax cuts would do little to alleviate the long-term effects of bracket creep and fall short of the systemic tax reform experts have called for.

“This proposal is directed to alleviating cost-of-living pressures and would represent a modest relief for many taxpayers. However, this is not the silver bullet to address pervasive bracket creep or Australia’s overreliance on personal income tax as one of its main sources of revenue,” Julie Abdalla, head of tax and legal at The Tax Institute, said.

In a release, BDO said: "The changes Australia’s tax system needs remain off the table. The reluctance of almost any Australian politician or party to discuss tax reform means the budget deficit increases during the forward estimates period.”

Cameron Blackwood, head of tax at Corrs Chambers Westgarth, said the “piecemeal” slew of recent amendments to tax rules – including reforms to the thin capitalisation regime – have caused ambiguity and confusion for businesses. He called for clear, comprehensive tax reform that could provide companies with long-term certainty.

“[Tax policy] ambiguity poses significant challenges for any major businesses in Australia with cross-border operations, hampering their ability to plan beyond the immediate future and leading to increased costs, heightened complexity, and widespread inefficiencies across the economy,” Blackwood said.

“This fragmented approach makes it difficult for businesses to plan and invest with confidence. While targeted changes may address certain immediate concerns, they fall short of delivering the meaningful, holistic tax reform Australia needs.”

The Greens and Coalition also slammed the tax cuts as unambitious and ineffective, given the cost-of-living pressures households have faced.

“The Coalition will not support these tax changes that do nothing to address the collapse in living standards under Labor. Seventy cents a day, in a year’s time, is not going to help address the financial stress Australian families are currently under,” shadow treasurer Angus Taylor said.

Adam Bandt, leader of the Greens, said: “An extra 73 cents a day in 15 months’ time won’t do much when your rent has already gone up hundreds of dollars a week.”

“Billionaires and politicians still end up with tax cuts four times as big as low-income earners.”

The government also included more funding for tax compliance activities in the budget, in hopes of increasing tax receipts by $3.2 billion and clawing back $31 million in unpaid super to employees.

From July 1 2025, $717.8 million will be allocated over four years to fund an expansion of the Tax Avoidance Taskforce, supporting the Tax Office’s efforts to crack down on multinational tax avoidance.

This comes after the ATO revealed that almost a third of companies operating in Australia paid no tax in Australia in the 2022–23 financial year.

Labor also committed $155.5 million over four years to expand the Shadow Economy Compliance Program, which seeks to shut down worker exploitation, under-reporting of taxable income and illicit tobacco activity.

“This funding boost is expected to significantly enhance the ATO's ability to enforce taxpayer compliance and contribute to a fairer and more sustainable tax system,” Grant Thornton said in a release.

However, the tax revenue clawed back from non-compliant entities will do little to address structural issues in Australia’s tax system.

“The deficits over the coming years highlight the ever-increasing tax burden on Australia’s younger generations, which is unacceptable and can only be resolved by updating our outdated tax system,” Todd Want, head of tax services at William Buck, said.