Summary of the 2025–26 Federal Budget
On 25 March 2025, the Federal Government handed down its fourth budget with a clear focus on cost-of-living relief, housing, education, and strengthening social support systems. While the economic backdrop remains uncertain, the government has opted for a mixture of modest tax relief, increased social benefits, and infrastructure commitments, while still grappling with structural budget deficits. Here’s an overview of the key takeaways across tax, superannuation, and cost-of-living measures.
1. Tax Measures
Personal Income Tax Cuts
One of the headline announcements was a modest tax cut for individual taxpayers, rolled out in two phases:
•From 1 July 2026, the lowest tax bracket ($18,200–$45,000) will be reduced from 16% to 15%.
•From 1 July 2027, the same bracket will be further reduced to 14%.
This staged reduction means a taxpayer earning at least $45,000 will be $268 better off in 2026–27 and $536 in 2027–28. While modest, the move provides symbolic relief during challenging times. However, the delay and scale of the cut, along with rising wages and inflation, means that bracket creep (where income growth pushes people into higher tax brackets) will still work in the government’s favor over the long term.
These changes are contingent on the Labor Government’s re-election, although the opposition may offer their own tax policy closer to the election.
Medicare Levy Low-Income Thresholds
Effective 1 July 2024, the government will raise the Medicare levy low-income thresholds for:
•Singles
•Families
•Seniors and pensioners
This adjustment provides immediate tax relief to lower-income earners, unlike the delayed income tax cuts.
HELP and Student Loan Relief
A significant move in education policy is the decision to:
• Wipe 20% of all outstanding student debt under the HELP and other loan schemes before indexation on 1 June 2025.
• Raise the minimum repayment threshold from $54,435 in 2024–25 to $67,000 in 2025–26.
These measures, first announced in late 2024, will relieve pressure on students and recent graduates, potentially removing around $16 billion in student debt.
Instant Asset Write-Off – Still in Limbo
The Budget did not introduce any new changes to the Instant Asset Write-Off. Despite the previous year’s announcement extending the $20,000 threshold to 30 June 2025, the relevant legislation remains unenacted. As of now, unless changed, the threshold will drop back to $1,000 for the 2024–25 financial year.
This ongoing uncertainty affects small business planning and highlights the government’s reluctance to make the write-off a permanent fixture, despite industry calls to lift it to $30,000 and lock it into law.
2. Superannuation Changes
Payday Super – Effective 1 July 2026
A major reform to employer obligations will require that superannuation contributions be paid at the same time as wages starting 1 July 2026, instead of quarterly. This change is aimed at increasing transparency and compounding benefits for employees.
Implications:
•Employees will see super paid in real-time, aiding in better tracking.
•Faster super payments will boost retirement savings—a 25-year-old on a median income could have $6,000 more at retirement.
•For businesses, this means adjusting cashflow and payroll processes to accommodate more frequent payments.
This reform is designed to address compliance issues and boost retirement outcomes through early compounding.
Super Tax on High Balances
The government reaffirmed its controversial proposal to apply a 15% additional tax on superannuation earnings above $3 million, starting 1 July 2025. This is on top of the current 15% tax.
Concerns raised include:
•Taxing unrealised capital gains, potentially leading to cashflow issues for asset-rich, income-poor individuals.
•The fixed $3 million cap, which will affect more people over time due to inflation and investment growth.
•Self-managed super funds (SMSFs) with illiquid assets (e.g., farms or properties) may be forced to sell assets to meet tax obligations.
Unless passed before the upcoming election, this measure will lapse and may not return, depending on the election outcome. Its future is therefore politically uncertain.
3. Cost of Living Measures
Amid widespread inflation and economic strain, the government introduced targeted initiatives to ease cost-of-living pressures:
Energy Bill Relief
•Eligible households will receive $150 in energy bill credits ($75 per quarter) from 1 July 2025.
•Small businesses, defined as “small electricity customers” by state criteria, will also receive $150.
•Rebates will be automatically applied by energy providers and continue through 31 December 2025.
This is a direct continuation of previous rebates and aims to offset high energy costs without adding administrative burdens on recipients.
Bulk Billing Expansion
Starting 1 November 2025, the bulk billing incentive will be expanded to all Medicare-eligible Australians, not just children and concession card holders.
Additionally, a new Bulk Billing Practice Incentive Program will reward GPs who bulk bill all Medicare consultations, with the government’s goal of ensuring that 90% of all GP visits are bulk billed by 2030.
This move is expected to improve access to healthcare and reduce out-of-pocket costs, especially for lower-income earners.
Cheaper Medicines
Beginning 1 January 2026, the maximum Pharmaceutical Benefits Scheme (PBS) co-payment will be:
• Reduced from $31.60 to $25.00 per script for general Medicare cardholders.
• Frozen at $7.70 for concession card holders.
This reduction is aimed at making essential medicines more affordable for Australians, a key concern during inflationary periods.
Conclusion
The 2025–26 Federal Budget represents a pragmatic, pre-election strategy to address cost-of-living issues, improve social welfare, and offer modest tax relief. While the tax cuts and HELP debt reductions provide some breathing room for individuals, businesses are still facing legislative uncertainties, especially regarding the Instant Asset Write-Off and super tax on large balances.
The shift toward more frequent super payments marks a significant structural change, aligning retirement savings with modern payroll systems. However, the proposed super tax has sparked industry concern due to potential equity and liquidity issues.
As always, many of the proposed measures depend on the outcome of the upcoming federal election, meaning businesses and individuals should watch closely to see which policies survive and which are sidelined.
For further clarification or tailored advice, individuals are encouraged to consult their financial advisor or accountant.
Disclaimer:
The material and opinions in this article are those of the author and not those of AP Family Office. The material and opinions in the article should not be used or treated as professional advice and readers should rely on their own enquiries in making
