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The Albanese government delivers an election-eve budget sweetened with tax cuts, which the opposition will be under pressure to match, while conceding that a surplus is a decade away. By Karen Barlow.
Federal budget unveils tax cuts and improved forecasts
In Labor’s re-election pitch, Treasurer Jim Chalmers’ fourth budget sees the nation’s books back in the red, with $17 billion dollars’ worth of tax cuts and efforts to “Trump-proof” the Australian economy.
With Prime Minister Anthony Albanese on the verge of calling the 2025 poll date, the back-to-back surpluses of the previous two years have become a $27.6 billion deficit.
There is no radical reform in the budget papers, nor an increase to JobSeeker unemployment support. The cost-of-living centrepiece is getting Australians “earning more and keeping more”, Chalmer says, with “top up” tax cuts.
“The average tax cut is $50 a week,” the Treasurer says, although that figure is when it is combined with existing tax cuts. “We know there is an appetite for more tax relief. We understand that. We provide tax relief when we can afford to do that, but we are operating in the context of some pretty substantial fiscal restraints.” There’s a pledge to cut the 16 per cent tax rate for those Australians earning over $18,200 to 15 per cent next year and 14 per cent the year after.
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The tax cuts announced in the budget are over two years from the next financial year. This is a second round of tax cuts after the rejigged Morrison-era stage three tax cuts that began last July.
Every Australian will receive a cut of up to $268 from July 2026. After that, the average worker earning $79,000 per annum will get $50 a week in new tax relief, or $536 extra a year.
“We acknowledge that these tax cuts in isolation are modest, but they are meaningful in combination,” Chalmers says.
Not long after the budget release, the shadow treasurer said that the Coalition will not support the tax cuts, though he wouldn’t elaborate on any other possible offers. He continued to attack what he called Labor’s “wasteful spending”.
Even before the budget landed, Angus Taylor had described it as “failed”.
“Right now, the plan for the budget, or the last budget, indeed, was that we wouldn’t get back to the standard of living we had when we were in government, the Coalition was in government until 2030 or beyond,” Taylor told reporters in Canberra. “This will be a lost decade for Australian families.”
The other budget surprise is a move to abolish non-compete clauses for millions of workers.
The budget states that the contract clauses are holding too many Australians back from switching to better, higher-paying jobs.
More than 3 million Australians are captured by the clauses, and the Productivity Commission estimates the move could unlock $5 billion through increased productivity, and other measures.
“People should not need to hire a lawyer to take the next step in their career,” Chalmers says.
The budget themes for Labor are very similar to last year: cost-of-living relief, education funding, strengthening Medicare, building more homes and a Future Made in Australia.
Pitching Labor as better economic managers in a time of uncertainty, the Treasurer offers the budget as a “platform for prosperity”.
“We’ve come a long way, but there’s more work to do,” Chalmers told Parliament.
“This budget is our plan for a new generation of prosperity in a new world of uncertainty. It’s a plan to help finish the fight against inflation. Rebuild living standards and maximise our national advantages into the future.”
The $27.6 billion deficit is slightly down on Treasury’s expectation of a $28.3 billion overspend in the last budget in May, but is expected to rise again next year to $42 billion.
It will be 2035 before the budget is forecast to be back in the black.
Extra spending continues in the major unavoidable areas of defence, health, aged care, NDIS and paying down debt.
There’s an extra $61.7 million for the acquisition of the AUKUS nuclear-powered subs to be drawn from other areas of defence. Ukraine will also get another $17 million over two years from defence resourcing for its fight against Russia, and the budget sees the allocation of $36 million over five years for the return of the Australian embassy in Kyiv.
Labor has stressed it is banking savings and lowering the debt burden, and according to Finance Minister Katy Gallagher has overseen the “biggest ever fiscal improvement in a single term”.
The government has made headway paying down debt and avoiding debt interest payments, with the budget papers showing an overall $177 billion reduction this year in gross debt, from the pre-2022 election forecast of $1.056 trillion over Labor’s three years.
The budget papers show the debt level is now $940 billion and will rise to $1.022 trillion next year.
“That avoids $60 billion in interest costs,” Gallagher told reporters in Canberra.
“We have done this as well by some showing spending restraint, banking that majority of upward revisions of revenue and also by identifying responsible savings in every budget.”
The budget papers do not mention Donald Trump by name, but it addresses a “volatile and unpredictable” global economy and the “tariffs and tensions” abroad.
The Treasurer later qualified that the tariff situation was “huge” but not the whole story, citing an economic slowdown in China, the war in Europe and the Middle East crisis.
Chalmers offers the budget as fiscally conservative as “storm clouds gather”.
“The global economy and the world more broadly is a dangerous place right now and it is casting a dark shadow over the world and our own deliberation,” he told journalists in the budget lock-up.
A $20 million “Buy Australia” plan is being rolled out to soften the blow of Trump’s tariffs. After the taxes on aluminium and steel, beef and pharmaceuticals are expected to be next in line from Australia’s long-term ally.
It is not a boycott, but government departments will favour Australian companies and households will be encouraged, where possible, to buy locally.
There’s $3 billion to support locally made green metals production – a Future Made in Australia offering designed to make the nation more resilient.
“That was necessary before the escalation in trade tensions, it is even more necessary now,” Chalmers says.
Overall, the budget added more than $16 billion over four years in new policy decisions since the December budget update.
Key announcements have already been released including the weekend news of $1.8 billion for further power bill relief from July through to the end of the year. There’s also the extra $8.5 billion Medicare pledge, including 18 million more bulk-billed GP visits and the incentive being expanded to all Australians from November 1. The government also announced $600 million to reduce the cost of drugs on the pharmaceutical benefits scheme to $25.
Extra support for disaster relief following tropical cyclone Alfred was also laid out. It has already been budgeted as a $1.2 billion hit to Australia’s GDP.
The cost-of-living offering is constrained by the imperative not to make inflation pressures worse.
Treasury estimates inflation is easing faster than expected, in an important sign for Reserve Bank watchers. The budget papers show inflation at 2.5 per cent through the year to the June quarter.
“Abstracting from the impact of fuel and energy rebates, inflation is expected to sustainably be in the target band around the middle of 2025,” the budget states. “This is earlier than was forecast at MYEFO, when inflation was not expected to be sustainably back in the band until late 2025.”
The NDIS, which has had its growth brought back to around 10 per cent and is in the process of being restrained to 8 per cent, remains one of the budget’s biggest spending pressures.
Total assistance to people with disabilities, including the NDIS and financial support for carers, comes to $90.8 billion in 2025-26.
The figures for the public service have also been updated.
The Coalition, in one of its few announced election policies, has been promising to sack the 36,000 public servants employed under Labor to replace the Coalition use of consultants. It has started complaining that Australians are not seeing any improvement in public services. “In fact, quite the opposite,” according to Taylor and finance spokeswoman Jane Hume.
The budget papers show the direct conversion of 11,800 new public service roles to replace consultants and contractors. There has now been an addition of 39,500 extra public servants since the 2022 election.
The finance department says the size of the APS is 185,343 and as a percentage of the population it is slightly smaller than when Liberal prime minister John Howard left office in 2007.
“The relative size of the public service has remained below historical levels when measured as a proportion of the total Australian population and the labour force,” the budget papers show.
There’s not much left in the tank. One of the key government spending figures is the currently unexplained column for “decisions taken but not yet announced and not for publication”.
The figure lands at $323.4 million and rounds out to $1.5 billion over the next four years.
Voters can decide on the budget in May, but they will get a look at the Coalition’s still-threadbare economic plan on Thursday with Peter Dutton’s budget reply speech.
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