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- 2025-26 Federal Budget delivered 25th March 2025
- Forecast deficit of $27.6b for this current year and increasing to a $42b deficit next financial year
- Pre-election budget sweeteners include predominantly $17b worth of personal tax cuts
- Investment Incentives - Building on the existing Future Made in Australia plan
- Extension of ATO tax compliance programs
- Deferral of clean building concessional MIT withholding tax rate extension
- Deferral of strengthening the foreign resident capital gains tax regime measures
- Two-year freeze on beer excise
- Announced but unlegislated previous key budget tax measures
On Tuesday 14 May 2024, the Federal Treasurer Jim Chalmers handed down his third budget being the 2024-25 Federal Budget.
This Tax Alert focuses on the key announced tax measures that impact your business tax planning and compliance processes and business incentives. The broader economic and policy issues in the 2024-25 Federal Budget are on the EY Australia website (link here).
Last year's budget surplus of $15.8b has now become a forecast deficit of $27.6b for this current year and increasing to a $42b deficit next financial year. The Budget forecasts real spending growth of 6% this year, far exceeding economic growth which has been downgraded from 1.75% to 1.5% of GDP. It also assumes spending growth will drop to 3% next year and 0.5% the year after, a forecast which seems very hopeful to say the least. Gross government debt is now forecast to peak at 37% ($1.2 trillion) of GDP, up from 35% in last year's budget.
Given that we are only a few weeks away from an election, there are typical pre-election budget sweeteners to be found, and this year predominantly in the form of $17b worth of personal tax cuts amounting up to $268 in 2026–27 and up to $536 in 2027–28, relative to 2024–25.
When the Treasurer delivered last year’s Budget in May last year, we said that the budget needed to do three things; prioritise fiscal discipline to
ensure inflation remains under control; bring the structural budget closer to balance; and accelerate the pace of policy reform, including tax reform, to help boost our failing productivity. We were left disappointed on all three fronts in last year's Budget, and we remain disappointed on all three fronts in this year's Budget.
On the tax front, the government continues to avoid any genuine attempt at structural reform, leaving us with a highly uncompetitive corporate tax rate of 30% and a personal income tax system with a very high top marginal tax rate (with Medicare levy) of 47% which cuts in at a low dollar threshold by OECD standards.
This results in a very high proportion of Australia's tax revenues coming from income taxes, as opposed to consumption taxes, which therefore results in disincentives to productivity enhancing work and investments. In fact, the largest revenue raising measure in the Budget, raising some $3b over the forecast period, is additional funding of approximately $1b to the ATO to pursue revenue raising compliance activities, and so maximise the collection of the uncompetitive corporate and personal income tax rate structure that we have.
Australia desperately needs structural fiscal reform but neither side of politics seems to be able to deliver it. Perhaps it may remain to a hung Parliament and a deal with the Independents for us to eventually see it.