The Federal Budget for 2025-2026 was published and announced by Treasurer Jim Chalmers on March 25th, 2025. It highlights the current expenditure plans for the Federal government, with a particular focus on reducing the cost of living measures for all Australians to ultimately improve living standards in the long term.
What is the Federal Budget?
The Federal Budget is an annual release by the Australian Government that maps out the collection and expenditure of money throughout the nation for the next financial year, starting from July 1st. Collection of money is primarily facilitated by taxes, including income and company taxes, while expenditure can be on a myriad of sectors, including welfare, healthcare, and defence. By outlining the plans for fiscal expenditure, the government can work towards achieving other economic goals, namely stable and low inflation and unemployment.
What are the key components of the 2025-2026 Federal Budget?
This year’s Federal Budget is especially focussed on assisting with the cost-of-living crisis, through direct policies and those adjacent in healthcare and housing sectors.
Tax Cuts
The primary tool being utilised by the Federal Government to lower the cost of living are personal income tax cuts, commencing from the 1st of July, 2026. The lowest marginal tax rate, applicable to income between $18,201 and $45,000, will be reduced from its current 16% to 14% by the 2027-2028 fiscal year. This is estimated to have a $2548 p/y cut, averaging around $50 p/w.
Cutting Student Debt
In order to provide immediate cost-of-living relief for millions of Australians the government has adopted changes that will result in a combined $19 Bn cut in student loan debt. This is to be achieved by reducing all outstanding loans under the Higher Education Loan Program (HELP) by 20%, removing $16 Bn in debt. Additionally, the government will increase the amount of income required for individuals to begin repaying their loans from $54,435 to $67,000.
Permanent Free TAFE
In response to the skill gap in the Australian labour market, the government is encouraging vocational training through an investment of 100,000 free TAFE enrolments every year from the 1st of January 2027. Not only does this legislation plan to increase the availability of labour in priority sectors, but it again addresses the pressing concern of cost-of-living pressures by making education and trading more accessible.
Strengthening Medicare
The government is investing $7.9 Bn into Medicare to ensure that all Australians receive access to immediate and affordable healthcare in the form of free GP visits. To improve the overall quality of the healthcare system, the government is also injecting $1.8 Bn to fund public hospitals and health services to help improve hospital efficiency.
Gender-based Violence
The $21.4 Mn committed in this year’s Federal Budget brings the total expenditure for the National Plan to End Violence Against Women and Children to over $4 Bn since the 2022-2023 October Budget. These measures are designed to enhance legal access for victims of gender-based violence and continue the delivery of prevention, early intervention, and response services.
What are the impacts of the Federal Budget?
This year’s Budget is anticipated to positively benefit most everyday Australians, namely students, home buyers, and all taxpayers as their obligatory expenses are reduced, thus increasing the disposable income required to alleviate cost of living pressures. Whilst the consequential increased spending is beneficial for economic activity, it does pose demand-side inflation risks that make it unlikely for the RBA to cut interest rates in the near future. Without interest rates being cut, mortgages, loans, and other borrowing costs will remain high, straining household budgets. In addition, the heightened expenditure by the government raises concerns about increased national debt, anticipated to reach 23.1% of national GDP by 2028-2029. This may pose an issue of economic volatility, but the next fiscal year is currently anticipated to remain stable, with economic growth expected to rise to ~2.5% and inflation to remain within the 2-4% range, on par with the optimistic values for the economy.
Ultimately, the Federal Budget is concentrated in providing immediate cost-of-living relief for all Australians through strategic investments in education, healthcare, and housing, as well as imperative cuts in personal income taxation. For the economy as a whole, this may result in problematic fiscal sustainability, however, it is recommended that individual Australians evaluate how this year’s Budget will impact them personally.