Federal Budget 2025: Key Tax, Business, and Economic Measures
The Federal Budget 2025, presented by Treasurer Jim Chalmers, focuses on cost-of-living relief, tax changes, business incentives, and tighter tax compliance measures. With a federal election approaching, the government has balanced support for households and businesses while increasing tax enforcement efforts, particularly for large corporations, high-net-worth individuals, and foreign property investors.
This analysis covers the major taxation, business, and superannuation changes that are relevant to businesses, accountants, and investors.
Chalmers says the budget has five main priorities: “Helping with the cost of living, strengthening Medicare, building more homes, investing in every stage of education, and making our economy more productive and more resilient.”
There was additional funding and cost-of-living relief in the health sector, modest relief for beer drinkers with a pause on the excise, an extension of the Help to Buy scheme for first homebuyers and an expansion of free TAFE places.
While delivering around $30 billion in cost-of-living relief and $17.1 billion on surprise personal tax cuts, CPA Australia’s Chief Executive Chris Freeland says the budget “lacks vision and ambition”, with no incentives for small business.
Higher tax receipts soften the impact of higher government spending, although net national debt is forecast to rise to $620 billion in 2025-26, up from $556 billion in 2024-25.
Institute of Chartered Accountants in Australia and New Zealand’s view (CAANZ): “Approaching an election, the 2025-26 budget provides tax cuts and cheaper beer but little in way of substantive tax announcements apart from more money for ATO compliance.”
- Personal Taxation and Medicare Levy Changes
Personal Income Tax Cuts from 2026
The government has announced changes to personal income tax rates, which will take effect from the 2026-2027 financial year. The adjustments primarily benefit low- and middle-income earners.
Under the new tax structure:
- The tax rate for incomes between $18,201 and $45,000 will decrease from 16 percent to 15 percent in 2026 and further to 14 percent in 2027.
- The 30 percent tax bracket will cover incomes from $45,001 to $135,000.
- The 37 percent tax bracket will apply to incomes between $135,001 and $190,000.
- The top tax rate of 45 percent remains for incomes over $190,000.
These tax cuts are designed to provide relief for lower and middle-income earners while ensuring that higher-income earners continue to contribute a fair share.
Increase in Medicare Levy Low-Income Thresholds
The government will increase the Medicare levy low-income threshold for individuals and families for the 2024-2025 tax year. This will ensure that low-income earners are not required to pay the levy if their income is below the updated threshold.
The new thresholds are as follows:
- Individuals: $26,000
- Families: $45,000 (plus $4,500 for each dependent child or student)
This change will provide additional relief to lower-income Australians by reducing their tax obligations.
- Business Taxation and Incentives
No Extension of the Instant Asset Write-Off from 1st July 2026
The government has not extended the instant asset write-off for the full cost of eligible depreciating assets costing less than $20,000 for small businesses with an aggregated turnover of less than $10 million. That means the assets will be placed in the depreciation pool and the usual depreciation rates will apply.
Support for Apprentices and Fee-Free TAFE
The government will provide $722.8 million over four years from 2025-2026 to support apprenticeships and vocational training. The funding includes:
- $626.9 million to expand the Key Apprenticeship Program, previously known as the New Energy Apprenticeships Program, to include critical residential construction occupations.
- $77.8 million to extend the Australian Apprenticeship Incentive System for six months from July to December 2025.
- $11 million to increase the Disability Australian Apprentice Wage Support subsidy.
- $7 million to increase the Living Away From Home Allowance for apprentices.
Additionally, the government will provide $253.7 million over two years from 2026-2027 to make Fee-Free TAFE a permanent program, funding at least 100,000 places per year from January 1, 2027.
This initiative aims to address skill shortages by encouraging more Australians to pursue trades and vocational careers.
- Foreign Investment and Property Market Measures
Ban on Foreign Ownership of Established Properties
The government has introduced a two-year ban on foreign residents and companies purchasing established residential properties, effective from April 1, 2025.
Exceptions will apply to:
- Investments that significantly increase housing supply.
- Foreign-owned companies providing housing for workers in specific industries.
The Australian Taxation Office (ATO) will receive $5.7 million over four years to enforce the ban, ensuring compliance among foreign investors.
This measure is aimed at improving housing affordability and reducing competition from foreign buyers, particularly in high-demand markets.
Crackdown on Foreign Land Banking
The government will provide $8.9 million over four years from 2025-2026 to strengthen compliance measures against foreign investors engaging in land banking.
Land banking involves purchasing vacant land and holding it without development, leading to restricted housing supply and increased property prices. The ATO will audit foreign investors to ensure that they comply with development requirements within reasonable timeframes.
These measures are intended to increase housing supply and prevent speculative practices in the property market.
- Employment Law Reforms
Ban on Non-Compete Clauses in Employment Contracts
The government has announced that non-compete clauses will be banned for workers earning less than $175,000 per year.
Non-compete clauses prevent employees from working for competitors or starting similar businesses for a set period after leaving their job. These clauses have been criticized for limiting job mobility and wage growth.
In addition to banning non-compete clauses, the government will also:
- Prohibit companies from using “no-poach” agreements, which prevent businesses from hiring each other’s employees.
- Close loopholes that allow businesses to fix wages through anti-competitive agreements.
The ban will take effect from 2027, allowing businesses time to adjust.
- Superannuation and ATO Compliance Measures
Super Guarantee Increase to 12 Percent
The Superannuation Guarantee (SG) rate will increase from 11.5 percent to 12 percent on July 1, 2025.
Employers must ensure that their superannuation contributions meet this new threshold. They cannot use salary-sacrificed contributions to offset the increase.
Proposed Division 296 Tax on Super Balances Over $3 Million
The government has proposed an additional 15 percent tax on superannuation earnings for individuals with a total superannuation balance over $3 million.
The tax will apply to unrealized capital gains, meaning that even if the assets have not been sold, they will be subject to taxation.
This measure is still before the Senate and may be subject to change depending on the outcome of the next federal election.
ATO Compliance Crackdown
The ATO will receive $999 million over four years to enhance compliance activities, including:
- $717.8 million for the Tax Avoidance Taskforce, targeting multinationals and high-net-worth individuals.
- $155.5 million to reduce shadow economy activities, such as underreported income and illicit transactions.
- $75.7 million for personal income tax compliance.
- $50 million for tax integrity programs, ensuring timely payment of tax liabilities by businesses and wealthy individuals.
The government expects this investment to generate $3.2 billion in additional revenue over five years.
CPA Australia View
Treasurer Jim Chalmers’ fourth Federal Budget sees last year’s $15.8 billion surplus turn into a forecast deficit of $27.6 billion in 2024-25, and $42.1 billion for 2025-26. Higher tax receipts soften the impact of higher government spending, although net national debt is forecast to rise to $620 billion in 2025-26, up from $556 billion in 2024-25. Chalmers says the budget has five main priorities: “Helping with the cost of living, strengthening Medicare, building more homes, investing in every stage of education, and making our economy more productive and more resilient.” “This budget is about more than putting the worst behind us,” says Chalmers. “It is about seizing the best of what’s ahead of us.”
In a budget the government never planned to bring down but was forced to do so after Tropical Cyclone Alfred postponed its scheduled April election, Chalmers was able to conjure an electoral sweetener in the form of modest tax cuts. There was additional funding and cost-of-living relief in the health sector, modest relief for beer drinkers with a pause on the excise, an extension of the Help to Buy scheme for first homebuyers and an expansion of free TAFE places.
No pain relief for SMEs
CPA Australia Chief Executive Officer Chris Freeland says businesses and their advisers would “find little” in the budget that will “help offset the pain all too many small businesses have been experiencing.”
“The Budget lacks ambition and a thorough understanding of what business needs. Not enough is being done to slash red tape or create the conditions and improve policy development that would shift the dial on Australian productivity and competitiveness,” says Freeland.
He adds that while the small personal tax cuts might “capture the public’s attention” they would in reality fail to help most Australians. “SMEs – many of which have thin margins – needed a Budget that would significantly alleviate the cost pressures they face every day,” says Freeland.
“The unrelenting rise in insurance premiums and the burden of utility bills, materials, wages, fuel and various other inflationary pressures are hard to manage. “Though the emphasis on relieving pressures on household finances was expected, a more business-centric Budget would have benefitted all Australians because small businesses are significant contributors to the economy and job creation.”
He pointed to the instant asset write off as a “prime example” of an opportunity missed. “Tonight, it should have been made permanent – but it remains in limbo,” says Freeland. “Making it permanent would provide the certainty and opportunity businesses need to invest and grow. They cannot make serious long-term financial decisions when the rules could change every year.”
Personal tax cuts
While many of the budget measures were telegraphed in advance of budget speech, the tax cuts were held back, perhaps for maximum impact only days before the Government is expected to call an election for May.
At a cost to the budget of $17.1 billion, the cuts will be implemented in two stages, with the 16 per cent tax rate on incomes of between $18,201 and $45,000 to be cut to 15 per cent from July 1, 2026. In the second phase a year later, the rate will be cut to 14 per cent. Taxpayers earning above $45,000 will receive a tax cut worth $236 in the 2026-27 year. They will receive a further tax cut worth $236 in the 2027-28 year.
In another cost-of-living concession, the Medicare threshold will be increased by 4.7 per cent, meaning one million low-income earners would either not pay the levy or would pay a lower rate. This would save a single person up to $122 a year and is at a cost to the budget of $648 million.
At a cost of $7.9 billion over four years, access to bulk billing will be increased, by expanding eligibility for bulk billing incentives for all Australians and introducing a Bulk Billing Practice Incentive Program for general practices if they bulk bill every visit under Medicare.
Still on health, the budget will reduce the maximum price of prescription medicines from $31.60 to $25 for each script, while prices for pensions and concession card holders will be held at $7.70.
There is an extra $1.8 billion to reduce elective surgery waiting lists in public hospitals, and an additional 50 Medicare urgent care clinics will be opened to relieve pressure on hospital emergency departments.
Spending on the National Disability Insurance Scheme continues to increase. The NDIS cost $49 billion this year and is forecast to rise to $63 billion in 2028-29.
As telegraphed before the budget, the government will extend the $75 quarterly rebate on power bills until the end of 2025, making bills $150 cheaper. This will be at a cost of $1.8 billion.
Lower growth forecast
Spending growth is forecast at 6 per cent this year in an economy where the growth forecast for the 2024-25 year has been downgraded to 1.5 per cent from the previous 1.75 per cent. Growth for 2025-26 is forecast at 2.25 per cent.
On inflation, the government is forecasting inflation to fall to 2.5 per cent in 2024-25, within the Reserve Bank’s target band of 2 per cent to 3 per cent but increase to 3 per cent next year.
The Budget contained an additional $3 million allocation for the breeding program of the Maugean skate, the species environmentalists claim is under threat from salmon farming. Rugby League club St George Illawarra Dragons will receive $13.6 million to provide high performance and community sporting facilities, with the giant pandas at Adelaide Zoo set to receive $3.8 million over five years.
Despite a number of corporates stalling their investment in green hydrogen projects, the budget offers smelters switching to renewable energy $2 billion in aluminium production credits, while $1 billion is earmarked for steel makers including $500 million for the Whyalla steel works, now in administration.
Another $220 million has been allocated to support the Whyalla facility.
No news on the instant asset write-off
Surprisingly, the government was silent on the future of instant asset write off (IAWO). However, we may see an announcement in the coming days as there is over $1.5 billion squirrelled away in a line item called ‘Decisions taken but not yet announced’.
Freeland says “Tonight, [the IAWO] should have been made permanent – but it remains in limbo. Making it permanent would provide the certainty and opportunity businesses need to invest and grow. They cannot make serious long-term financial decisions when the rules could change every year.”
The crackdown on tax avoidance will continue with the Australian Taxation Office allocated $1 billion over five years to extend and expand its work on the shadow economy and compliance by corporates and personal taxpayers. It is estimated this will claw back $3.2cbillion over the next five years.
Dharmasya Moolam Arthah (Economy is the Strength)
Disclaimer: The content provides general information and discussion about Australian budget. The words and other content provided in this article are not intended and should not be construed as professional advice. If the reader or any other person needs clarification, he or she should consult with an appropriately-licensed professionals.
