Federal Government Budget 2025/26: What it means for you

On Tuesday 25 March 2025, Treasurer Jim Chalmers handed down the 2025–26 Australian Federal Government Budget.  This year’s budget will be in a deficit of approximately $42.1 billion and will be the Labour Government’s final budget before the coming election, with the focus of this budget-deficit to be on relieving cost of living pressures for individuals.

The Treasurer addressed five areas of priority in the budget, being: supporting the recovery from ex-Tropical Cyclone Alfred, cost-of-living support, strengthening Medicare, investing in education, and making the economy "more competitive, dynamic and productive”.

This article provides an overview of the Federal Budget and its measures while highlighting three key limbs of the budget, being: (1) the focus on cost of living and the changes to tax measures across a broad range of settings (2) the broader tax breaks and support that businesses will receive and (3) the measures aimed at encouraging investment in Australian business.

Budget overview

In the Australian Labor Party’s final budget prior to the federal election on 3 May 2025, they proposed a range of budget outcomes pending their re-election, with a focus on the following headline announcements:

• income Tax reductions for the lowest taxable threshold by 1% in each of the next 2 years, so that it will be reduced to 14% for the financial year commencing 1 July 2027;
• $1.2 billion to be spent on clean-up for ex-Cyclone Alfred clean up;
• relief for rising costs in respect of services in the energy and medical sectors;
• an overall increase in defence spending;
• support for business sectors and wages;
• ESG and investment in Australia; and
• tax changes to other key sectors.

We will consider some of the above headlines in more depth below.

Changes to income tax and the Government’s response to cost of living pressures

Income Tax:

The key headline from this years budget is the staggered two year reduction in the personal income tax percentage for the lowest taxable income band of $18,201 – $45,000.  The changes are as follows:

• the current FY 2024-25 rate of 16% will be reduced to 15% from 1 July 2026; and
• this rate will be further reduced to 14% from 1 July 2027.

This will see taxpayers save $268 in the FY 2026-27, and $536 in the FY 2027-28, when compared to the current 16% rate for FY 2024-25.

Changes to Medicare: 

In an effort to reduce cost of living pressures, there will be an increase in the Medicare levy threshold (i.e., the income level required to be caught under the level will be increased) by 4.7%. This increased threshold will apply in respect of singles, families and seniors with a pension.

 The Government will also spend $7.9 billion to bolster Medicare bulk billing services and expand eligibility for bulk billing to all Australians, with a target that 9 out of 10 visits to GPs will be bulk billed by 2030.

Energy bill relief:

 The budget also includes a commitment to energy bill relief in the range of $1.8 billion over two years from the FY 2025-26 to maintain the $75 quarterly rebates available to eligible Australian households and small businesses (until 31 December 2025).

Limiting non‑compete clauses to boost wages and mobility – through a competition lens:

The Government proposes to ban ‘non-compete clauses’ in employment contracts for low and middle income employees, which is aimed at increasing wages and earning capacity as these workers are freed to move to more productive, higher‑paying jobs.  This initiative stems from the overarching focus for the Government on increasing competition within the Australian market.

Business and trust support and tax breaks

 Managed Investment Trusts (MIT) Eligibility Changes.

 The Government’s intention to amend the MIT rules was reinforced by the measures introduced under the budget which:

• Sought to clarify the regime governing MITs in Australia and increase the ATO’s funding to ensure tax compliance; and
• Deferred the start date for previously announced changes to the ‘clean building’ MIT regime which expanded the categories of clean buildings which can be held by an MIT and increasing the minimum energy efficiency requirements for all “clean buildings” to a 6 Star Green Star rating.

Restricting Foreign Ownership of Housing:

The Government will ban foreign persons (including temporary residents and foreign‑owned companies) from purchasing established dwellings for two years from 1 April 2025, unless an exception applies (being investments that significantly increase housing supply or support the availability of housing on a commercial scale, and/or purchases by foreign‑owned companies to provide housing for workers in certain circumstances).  This measure is supported by additional ATO funding of $5.7 million over four years from 2025–26 to enforce the ban.

The Government will also provide the ATO and Treasury $8.9 million over four years from 2025–26 and $1.9 million per year ongoing from 2029–30 to implement an audit program and enhance their compliance approach to target land banking by foreign investors.

Other measures:

• Tax relief to support investment and jobs, including increasing the excise remission cap to $400,000 for all eligible alcohol manufacturers.
• The Government will also provide further relief to the alcohol sector including through increasing the Wine Equalisation Tax (WET) producer rebate to $400,000 and a freeze on the indexation of draught beer excise for two years, which is aimed at giving relief to consumers, brewers and hospitality businesses.
• $999 million will be provided over four years to the Australian Taxation Office (ATO) to extend and expand tax compliance activities. This will include funding for the Tax Avoidance Taskforce and Shadow Economy Compliance Program to target worker exploitation, under-reporting of taxable income, illicit tobacco and activity that enables the undercutting of competition.
• The Government will strengthen the sanctions available to the Tax Practitioners Board, including funding for additional compliance targeting high-risk tax practitioners until July 2030.

Encouragement for Australian Investment

The budget also included measures which continue and support the Government’s existing $22.7 billion Future Made in Australia agenda.  This budget provided added investment in renewable energy and low emissions technologies, and private investment in the priority areas, (targeting green metals).

Key measures:

• The Government is committing $8 billion of additional investment in renewable energy and low emissions technologies through a $2 billion recapitalisation of the Clean Energy Finance Corporation.
• $1.5 billion will be allocated in support for priority areas through the Future Made in Australia Innovation Fund, comprising of:
• $750 million for green metals;
• $500 million for clean energy technology manufacturing capabilities; and
• $250 million for low carbon liquid fuels.
• The $2 billion Green Aluminium Production Credit will support Australian aluminium smelters to transition to renewable energy, and the $1 billion Green Iron Investment Fund will aid the development of this new industry.
• The Government is establishing a new ‘Front Door’ program for investors to make it simpler to invest in Australia and attract more global and domestic capital. From September 2025, the Front Door will begin to act as a single‑entry point for investors, providing priority projects with coordinated facilitation services, guided by an Investor Council.

Support for Australian Businesses

The Buy Australian Campaign provides $20 million to support Australian businesses, aiming to encourage consumption of Australian‑made products.

The Government’s ‘Buy Australia Plan’ was an apparent success, exceeding its small‑ and medium‑size enterprise (SME) procurement target of 35 per cent of contracts with a value of up to $20 million was.  The Environmentally Sustainable Procurement Policy will apply a further $4.5 billion of public procurement to drive investment and innovation in more sustainable goods and services.

The Government is also supporting businesses through its trade diversification agenda, with $16 million has been provided for a new Australia–India Trade and Investment Accelerator Fund.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics, such as:

• Superannuation and succession planning: the importance of getting your house in order
• Federal Government Budget 2024/25: what's in store?
• Budget 2023: Asset write-offs and amnesty, a tale of two measures

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