Federal Budget   

This 2025-26 Budget has been a balancing act for the government – trying to appeal to voters before an election through personal income tax cuts and cost of living relief, while also demonstrating fiscal responsibility. While the government has committed to important new measures to provide cost of living relief, it would have been welcome to see a stronger focus on productivity and incentivising business investment. 

A surprise in the Budget is the unexpected personal income tax reductions commencing from 1 July 2026. The starting rate of income tax will reduce from the current 16 percent to 14 percent by 2027-28. This will cost an estimated $17.1 billion over the forward estimates period. 

The Budget shows an expected deficit in the underlying cash balance for 2024-25 of $27.6 billion, or 1 percent of GDP. However, larger deficits are forecast over the remainder of the forward estimates period to 2028-29. 

Federal Government net debt is expected to remain reasonably stable as a percentage of GDP at between 21 and 24 percent over the forward estimates. 

Certain other forecasts over the forward estimates may be seen as relatively encouraging, with real GDP growth increasing to 2.75 percent and unemployment steadying at 4.25 percent. 

The extension to the Energy Bill Relief Fund through to 31 December 2025 at a cost of $1.8 billion will be welcomed by many, as will the measures to increase the amount of Medicare bulk billing and reduce the price of medicines under the Pharmaceutical Benefits Scheme. 

Support for Australian manufacturing is increased through additional funding of Australia’s metals industry, including green iron projects and assistance for transitioning to renewable energy. There is also more than $1.8 billion for road and rail transport infrastructure over the forward estimates period as part of a $17 billion 10-year program. 

While the Australian Taxation Office is receiving nearly $1 billion in additional funding for compliance activities, the Budget does not signal any tax reform which may be needed to fuel Australia's future growth and to protect our competitive position globally. 

It remains the case that the key to the nation’s future prosperity is productivity. We are eager to hear the further announcements expected to be made as part of the election campaign and what impact they will have on this aspect of our economy. 

Ref: Federal Budget 2025 Website  KPMG Australia 25 March 2025 

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