The Labor Government handed down its pre-election Federal Budget on 25 March 2025. Last year’s surplus of $15.8 billion has become a forecasted $27.6 billion deficit this year, projected to increase to a $42 billion deficit next financial year. The theme running through this year’s budget is ostensibly easing cost-of-living pressures for individuals and small businesses, but truth be told, it’s a pretty much "beige budget," aimed more at pre-election pandering than implementing significant structural changes.
Election budgets are usually known for their exciting commitments, but this year’s budget had a few from left field. Amongst the serious fiscal measures, there's funding for Giant Pandas ($3.8 million is being allocated to Adelaide Zoo over 5 years).
If Pandas don't excite you, maybe beer will? The Government has committed to freezing the draught beer excise for two years from August 2025. This means you could potentially save a whopping five cents per pint! Buy 1,000 beers, and you’ll save $50. Seriously though, let’s unpack the key measures that matter for you.
1. What does the Federal Budget mean for Individuals and Families?
1.1 New tax cuts from 1 July 2026
The Government is proposing to deliver new tax cuts from 1 July 2026.
Thresholds ($) | Rates in 2024-25 (%) | Rates in 2025-26 (Proposed*) | Rates in 2026-27 (Proposed*) |
0 – 18,200 | Nil | Nil | Nil |
18,201 – 45,000 | 16% | 15%* | 14%* |
45,001 – 135,000 | 30% | 30% | 30% |
135,001 – 190,000 | 37% | 37% | 37% |
Over 190,000 | 45% | 45% | 45% |
1.2 Medicare levy low-income thresholds increased
The Government is proposing to increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from 1 July 2024.
FY24 | FY25 | |
Singles | $26,000 | $27,222 |
Family | $43,846 | $45,907 |
Single seniors and pensions | $41,089 | $43,020 |
Each dependent child or student | $57,198 | $59,886 |
Family income thresholds for each dependent child or student | $4,216 | $4,027 |
What Does the Federal Budget Mean for Business?
2.1 Energy Bill Relief Fund Extension
The Government will provide $1.8 billion over two years from 2025–26 to continue energy bill rebates of $75 per quarter for eligible Australian households and small businesses until 31 December 2025 to provide cost-of-living relief. This measure extends the 2024–25 Budget measure titled Energy Bill Relief Fund – extension and expansion.
2.2 Instant Asset Write-Off
Last year's budget increased the Instant Asset Write-Off threshold to $20,000 for small businesses with an aggregated turnover of less than $10 million. Surprisingly, the Government did not extend this measure beyond 30 June 2025. Following 30 June 2025, the instant asset write-off will revert back to the legislated threshold of $1,000.
2.3 Support for Hospitality and Alcohol Producers
The Government is supporting the hospitality sector and alcohol producers by pausing indexation on draught beer excise and excise equivalent customs duty rates. Additionally, it is increasing support available under the existing Excise Remission Scheme for manufacturers of alcoholic beverages and the Wine Equalisation Tax Producer Rebate. These measures are estimated to decrease receipts by $165.0 million over five years from 2024–25.
2.4 Detecting and Prosecuting Illegal Phoenixing in the Construction Industry
The Government is also taking action to detect and prosecute illegal phoenixing and other shadow economy activity. This includes providing $3.0 million to improve the ability of the Australian Securities and Investments Commission (ASIC) to identify and take enforcement action against those involved in illegal phoenixing conduct. The focus will be on sectors more susceptible and impacted by such conduct, particularly the construction industry.
3. Federal Budget Impacts on the Economy and Investment Markets
As with the rest of the Budget, there’s unlikely to be an overwhelming reaction to the announcements. Forward estimates of inflation under control sooner than expected may bolster confidence in the broader market, as it brings into question whether interest rates can come down sooner, which supports business and share prices. From a tax perspective, cuts of 70c a day are unlikely to cause domestic listed retailers and service providers to whoop with joy.
Treasurer Jim Chalmers is clearly selling the concept of a Goldilocks economy with wages outpacing inflation and historically low unemployment – a perfect recipe for a strong market. That said, in the post budget interview, Chalmers warned of a “dark shadow” over the global economy amid escalating trade tensions, which could contribute to inflation.
Strong support of the greening of Iron Ore and Aluminium industries will be digested by the sector over the coming weeks, however with expenditure smoothed over two decades and much of the detail being “commercially sensitive’, it’s unclear how markets will react.
A reduced tax take of $6.9Bn from tobacco excise has been targeted, with the government stepping up policing of the illegal tobacco trade. Any success here could drive consumers back to the tobacco retailers such as Coles and Metcash, however whether this is measurable or indeed successful, only time will tell.
4. What does the Federal Budget mean for cross-border clients?
4.1 Restricting Foreign Ownership of Housing
Measures will be implemented to ensure purchase of homes by foreigners do not limit Australia’s housing supply. Key actions include:
- A 2-year ban on foreigners, including temporary residents and foreign-owned companies, from buying established dwellings starting 1 April 2025. There will be exceptions for investments that significantly increase housing supply or provide housing for workers in specific circumstances.
- Allocating $5.7 million over 4 years from 2025–26 to the ATO to enforce the ban.
- Providing $8.9 million over 4 years from 2025–26 and $1.9 million per year ongoing from 2029–30 to the ATO and Treasury to implement an audit program and enhance compliance targeting land banking by foreign investors.
The ATO and Treasury will also take steps to encourage foreign investors to develop vacant land for residential and commercial purposes within reasonable timeframes.
4.2 Deferring the start date of changes to the foreign resident capital gains tax (CGT) regime
The Labor Government announced in the 2024-25 Budget a measure to strengthen the foreign resident CGT regime.
Specifically, the reforms will consist of three complementary elements:
- Clarify and broaden the types of assets that foreign residents are subject to CGT on;
- Expand the test to determine indirect interests in Australian real property held through interposed entities;
- Require foreign residents disposing of shares and other membership interests exceeding
$20 million in value to notify the ATO prior to the transaction being executed.
The changes were to apply to CGT events commencing on or after 1 July 2025, but the start date has now been deferred to the later of 1 October 2025 or the first 1 January, 1 April, 1 July or 1 October after the amendments receive Royal Assent.
5. What Does the Federal Budget Mean for Tax Compliance?
The Government will provide additional funding to the ATO to extend and expand tax compliance activities in the following programs:
- Tax Avoidance Taskforce focusing on multinationals and large taxpayers;
- Shadow Economy Compliance Program focusing on worker exploitation, under-reporting taxable income;
- Personal Income Tax Compliance Program focusing on key areas of non-compliance; and
- Tax Integrity Program focusing on timely payment of tax and superannuation liabilities.
Understand the Impacts of the Federal Budget Updates on Your Business and Finances
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