If the political reporting is accurate, the Federal Budget was not supposed to happen now, with an election announcement slated to delay it from the scheduled 25 March date. Tropical Cyclone Alfred may have avoided using the name Anthony to prevent an awkward name clash with the Prime Minister, but it still was able to disrupt his plans for an April polling day.
After back-to-back surpluses reverting to a deficit position which is projected to last for several years, there was little opportunity for the Treasurer, Jim Chalmers, to pull a rabbit from a hat, but no pre-election budget is complete without a few sweeteners, and Chalmers had saved one treat for Budget 2025.
In a measure targeted at addressing the ongoing problem of bracket creep, we saw the announcement of tax cuts for all individual taxpayers. The cuts will come in through a phased reduction in the lowest rate of income tax from 16% in the current and next financial year, to 15% from 1 July 2026, and to 14% the year after.
The cut equates to a maximum of $536 per person for people earning over $45,000 once fully implemented, which adds up to a total cost of $17.1 billion across the forward estimates period. These newly announced cuts are being spruiked as part of a total reduction of $2,190 per year when combined with the already enacted stage 3 tax cuts, but the reality is that the lion’s share of that saving has already been mentally banked by taxpayers who will not see a year-on-year reduction at that level.
The tax cuts are also combined with an increase in the Medicare levy low-income threshold by 4.7% backdated to 1 July 2024, which is estimated to provide relief from paying some or all of the Medicare levy for more than 1 million taxpayers, helping alleviate the impact on the cost of living.
As was to be expected given plans to shelve this Australian Federal Budget, many of the measures had already been announced in advance of the day. Key initiatives which had already been announced in Federal Budget news include:
Housing affordability has long been a key priority for the government and the Help To Buy scheme is being expanded to provide a pathway to home ownership, with lower deposits and smaller mortgages. The scheme provides an equity contribution of up to 40% for eligible home buyers and $800 million is being committed to increase the qualifying property price and the income caps on buyers.
On the supply side, the government is targeting an additional 1.2 million new, well-located homes over a five-year period through the National Housing Accord. Funds have also been committed to the states and territories to improve planning, deliver necessary infrastructure and construct more social housing. Foreign buyers are also being targeted with a ban on them purchasing existing dwelling for two years from 1 April unless an (as yet undefined) exception applies, with funding being made available to the ATO to support the enforcement of this ban. Funding is also being targeted at land banking by foreign investors.
Education is also a focus, from early childhood through to students and graduates. Childcare support is being bolstered, with all families earning less than $530k being guaranteed three days of subsidised care without the need to satisfy the Activity Test. Funding of $3.6 billion is being directed to early educators through the Worker Retention Payment and a Building Early Education Fund is to be established to increase supply, with a particular focus on priority or under-served areas.
At the other end of the age range, the government is committing to 100,000 permanent free TAFE places each year to support students in priority sectors. In a direct appeal to students and graduates, there is confirmation of the promise to cut HELP debt by 20% before indexation applied on 1 June 2025, which weighs in at a cost of $16 billion to the public coffers.
Other spending announcements have been made around infrastructure, with upgrades to the Bruce Highway in Queensland, funding for rail corridors between Western Sydney and Macarthur and a swathe of road upgrade projects in Victoria, which a cynic might suggest are targeted at shoring up outer suburban seats come election day, potentially influencing the labour market in these areas.
The Federal Budget is being presented as the latest example of the Government’s “responsible economic and fiscal management” of the Australian economy, but with an election potentially being called as early as Friday, it remains to be seen whether the measures announced will satisfy voters at the ballot box.
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The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Crowe Australasia