Much of the 2025 Federal Budget was already known, following a volley of pre-election spruiking for votes. However, Treasurer Jim Chalmers had one surprise up his sleeve—$17 billion in tax cuts.
The first round of cuts will take effect on 1 July 2026, with the second round commencing on 1 July 2027. Once fully implemented, these cuts will save the average earner $536 per year.
The Treasurer also outlined five priorities for his fourth budget: easing the cost of living, strengthening Medicare, increasing housing supply, investing in education, and boosting economic growth.
He described it as a plan for “a new generation of prosperity in a new world of uncertainty” that would help “finish the fight against inflation.”
The big picture
The Budget deficit has made an unwelcome—but not surprising—return. The Albanese government has been clear that Australia was heading back into the red, and Treasurer Jim Chalmers says the $42.1 billion deficit is smaller than forecast at both the last election and the mid-year update.
Gross debt has been reduced by $177 billion to $940 billion, saving around $60 billion in interest over the decade.
Nonetheless, Australia is navigating choppy international waters amid a “volatile and unpredictable” global economy.
The country will feel the shockwaves from escalating trade tensions, two major global conflicts—in Russia-Ukraine and the Middle East—and slowing economic growth in China. Treasury predicts the global economy will grow by 3.25 per cent annually over the next three years, marking the longest stretch of below-average growth since the early 1990s.
However, the Treasurer says Australia is well positioned to manage these difficult conditions.
The Australian economy has “turned a corner” and continues to outperform many advanced economies. Inflation has moderated “significantly,” and the labour market has exceeded expectations. Meanwhile, growth is predicted to rise from 1.5 per cent to 2.5 per cent by 2026–27.
Addressing the cost of living
With the rising cost of living expected to be central to the upcoming election campaign, the Budget aims to provide greater support for those doing it tough. Key measures include further tax cuts, changes to Medicare and the Pharmaceutical Benefits Scheme (PBS), reductions in student debt, and wage increases for aged care and childcare workers.
Beyond the new tax cuts set for 2026 and 2027, the government will raise the Medicare levy low-income thresholds from 1 July 2024.
Energy bill relief is also being extended until the end of this year. At a cost of $1.8 billion, every household and around one million small businesses will each receive $150 off their electricity bills, paid in two quarterly instalments.
The government claims this energy bill relief has contributed to a 25.2 per cent drop in electricity prices across 2024.
Students aren’t overlooked in the Budget, with a $19 billion reduction in student loan debt. All outstanding student debts will be reduced by 20 per cent, alongside a promised reform to make the student loan repayment system fairer.
The government is also targeting cost-of-living pressures at the checkout. It plans to support fresh produce suppliers in enforcing their rights, simplify the process of opening new supermarkets, and crack down on “unfair and excessive” card surcharges.
Look for a clean bill of health
Almost $8 billion will be spent to expand bulk billing—the largest single investment in Medicare since its creation 40 years ago.
Treasurer Chalmers says that by the end of the decade, nine out of ten GP visits should be bulk billed, with an additional 4,800 bulk-billing practices.
There will also be 50 more Urgent Care Clinics nationwide, bringing the total to 137. Meanwhile, public hospitals will receive a $1.8 billion funding boost to help cut waiting lists, reduce emergency room wait times, and address ambulance ramping.
Cheaper medicines
The cost of medicines is also in the government’s sights. The maximum cost of drugs on the Pharmaceutical Benefits Scheme (PBS) will be lowered for everyone with a Medicare Card and no concession card. From 1 January 2026, the maximum co-payment will be lowered from $31.60 to $25.00 per script and remain at $7.70 for pensioners and concession card holders. Four out of five PBS medicines will become cheaper for general non‑Safety Net patients, with larger savings for medicines eligible for a 60‑day prescription.
An extra $1.8 billion is also being invested to list new medicines on the PBS.
Increasing the housing stock
The government’s previously announced target of 1.2 million new homes over five years has resulted in 45,000 homes being completed in the first quarter.
The Budget includes an additional $54 million to encourage modern construction methods and $120 million to help states and territories cut red tape.
With building activity set to increase, more apprentices are needed. To address this, the government has announced financial incentives of up to $10,000 to encourage more people to take up apprenticeships in building trades. Some employers may also be eligible for a $5,000 incentive for hiring apprentices.
The Help to Buy program, which allows homebuyers to enter the market with lower deposits and smaller mortgages, will be expanded with an additional $800 million. This funding will raise property price and income caps, making the scheme more accessible.
To help increase housing supply, foreign buyers will be banned from purchasing existing dwellings for two years from 1 April 2025. Land banking by foreign owners will also be outlawed.
Recovering and rebuilding
The damage from ex-Tropical Cyclone Alfred and subsequent rains in Queensland and northern New South Wales is so extensive that it is expected to reduce quarterly growth by a quarter of a percentage point.
Flooding has damaged infrastructure and disrupted supply chains, as well as agricultural production, construction, retail, and tourism activity.
The government anticipates disaster support costs of at least $13.5 billion. As a result, the Budget includes $1.2 billion for a contingency fund to improve responses to future disasters.
Looking ahead
With escalating rates of family violence and an alarming increase in the incidence of violence against women, the Federal Budget includes funding to support a range of programs.
More than $925 million will be spent over five years to provide support for victims leaving a violent intimate partner relationship and a program to strengthen accountability for systemic gender-based violence in higher education.
The government will invest more than $56 million over four years to improve access to sexual and reproductive healthcare for women, including training GPs to provide better menopause care.
A newly released national gender equality strategy will drive government action on women’s safety, sharing, economic equality, health, leadership, and representation.
In a move to take the pressure off parents, superannuation will be paid on government funded Paid Parental Leave (PPL) for parents of babies born or adopted on or after 1 July 2025.
Looking ahead
Despite concerning events on the world stage, Australia’s economy is emerging “in better shape than almost any other advanced economy.”
Inflation and unemployment are falling, and wage growth is expected to be stronger. To support ongoing economic growth, the Federal Budget adds $22.7 billion to the government’s Future Made in Australia agenda.
This includes additional investment in renewable energy and low-emissions technologies, as well as an expansion of the Clean Energy Finance Corporation. The plan also includes more than $15 billion in support for private investment in hydrogen and critical minerals production, clean energy technology manufacturing, green metals, and low-carbon liquid fuels.
As the trade war escalates, the Budget allocates $20 million to a Buy Australian campaign.
“The plan at the core of this Budget is about more than putting the worst behind us. It’s about seizing what’s ahead of us,” the Treasurer says.
If you have any questions about the Federal Budget measures announced and how it may impact your financial future, please don’t hesitate to contact our financial advice team.
Information in this article has been sourced from the Budget Speech 2025-26 and Federal Budget Support documents. It is important to note that the policies outlined in this article are yet to be passed as legislation and therefore may be subject to change.
