Federal budget
2025 Australian Federal Budget delivers a projected $207 billion debt reduction alongside cost-of-living relief and economic growth priorities
The budget prioritises cost-of-living relief, infrastructure investment, and tax compliance. While certain sectors benefit from increased government spending, the budget takes a conservative stance on broader tax reform, leaving many opportunities for future policy adjustments.
Impact on individuals
For individual taxpayers, the budget introduces modest but meaningful cost-of-living relief. The government has committed to reducing the lowest tax bracket from 16% to 15% in July 2026 and further to 14% in July 2027. While these tax cuts are relatively small, they will provide up to $536 in additional annual take-home pay. This equates to a $17.1 billion investment over 5 years.
The budget also increases Medicare levy low-income thresholds by 4.7%, reducing or eliminating Medicare levy obligations for lower-income Australians. The government has committed $8.5 billion to expanding Medicare, providing greater access to bulk-billed GP services and reducing out of pocket expenses for individuals, committing to 50 new Urgent Care centres, as well as pledging $1.8 billion in increased funding for public hospitals, $793 million specifically towards women’s health.
$2.6 billion has also been allocated to increasing award wages for those in aged care, with those in childcare also receiving $5 billion in funding to lift wages and grant better access to childcare, with the Government removing activity based assessments and funding 3 days of care for those who choose it. Additionally, the Government is committed to helping children at all stages, proposing to fully fund public schools and bring these into alignment with the Gonski recommendations given 15 years ago.
The Government will extend its energy bill rebate until the end of 2025 by providing a further two instalments of $75 (for a total of an additional $150) for individuals.
Furthermore, 20% of existing HELP debts will be forgiven before their indexation on June 1, 2025, providing relief to higher education borrowers. Housing affordability measures, such as the expansion of the Help to Buy program, aim to make homeownership more accessible.
Impact on small businesses
Small businesses will benefit from a variety of support measures, although no significant tax reforms have been introduced. Similar to individuals, small businesses will also receive energy bill relief, with the Government providing a further two instalments of $75 (for a total of an additional $150). Workforce policies also shift in this budget, notably with the banning of non-compete clauses for workers earning under $175,000, which may increase job mobility and competition.
Additionally, the government is investing $626.9 million over four years to incentivize apprenticeships. Eligible apprentices will receive an incentive payment $10,000, making trades more attractive and supporting faster project delivery. For business in construction and development, this means a stronger pipeline of skilled workers, helping address labour shortages.
On the tax compliance front, the Australian Taxation Office (ATO) is receiving $1 billion over four years to expand compliance programs, including the Shadow Economy Compliance Plan. This initiative aims to crack down on tax avoidance and ensure businesses meet their superannuation and tax obligations.
While the budget did not confirm an extension of the Instant Asset Write-Off (IAWO) beyond June 2025, discussions continue in Parliament regarding its future. At this stage, it remains uncertain whether the Instant Asset Write-Off (IAWO) concession will be extended beyond 30 June 2025. This tax policy allows small businesses (with an aggregated turnover of less than $10 million) to immediately depreciate eligible assets costing under $20,000.
Although not addressed in the Federal Budget, the measure is expected to be reintroduced in a Bill for debate in this week's parliamentary sittings. Potential changes may include adjustments to the write-off threshold, the eligibility criteria for businesses, and the duration of the concession.
While not as generous as the temporary full expensing scheme, the IAWO remains a valuable concession, providing both cash flow and compliance benefits to small business. However, businesses need certainty to effectively plan capital expenditure and maximise the tax incentive.
Impact on large businesses
Multinational businesses
Large multinational businesses will see increased regulatory scrutiny but also opportunities for investment in infrastructure and sustainability. The government has allocated $717.8 million over four years to extend the Tax Avoidance Taskforce, ensuring compliance among large corporations.
An additional $155.5 million has been earmarked to expand the Shadow Economy Compliance Program, addressing income under-reporting and illicit trade. Furthermore, $50 million will support the Tax Integrity Program, focusing on timely tax and superannuation payments from medium to large businesses.
Investment and infrastructure
From an investment perspective, the budget allocates $2 billion to recapitalize the Clean Energy Finance Corporation, supporting renewable energy projects and low-emissions technology.
Infrastructure remains a priority, with $17.1 billion dedicated to road and rail projects over ten years and $3 billion allocated to upgrade National Broadband Network (NBN) premises, improving business connectivity. The government is also investing $3.2 billion over 19 years in Australia’s metals industry, including $2 billion for green aluminium and $1 billion for green iron production, positioning Australian industries for future global competitiveness. Additionally, regulatory oversight has been bolstered with $207 million allocated to the Australian Securities and Investments Commission (ASIC) to enhance business register systems.
Budget highlights targeted relief and economic management while emphasising the need for broader tax reform
There is a clear need for tax reform. The budget still heavily relies on personal income tax, which accounts for a staggering 53% of all tax receipts. This percentage grows to 55% in 2029, after allowing for the tax cuts. This overreliance on personal income tax may not be sustainable in the long term, particularly as economic dynamics evolve and the workforce changes. A more diversified and forward-thinking tax system would be beneficial to ensure that Australia’s fiscal policies are resilient in the face of future economic challenges
The 2025 Australian Federal Budget presents a strategic mix of economic management and targeted relief while maintaining a cautious approach to tax reform. Individuals receive modest tax cuts and cost-of-living support, while small businesses benefit from energy rebates and workforce incentives. Large businesses face increased compliance measures, but also have access to substantial government investment in infrastructure and sustainability. Moving forward, the need for broader tax reform remains a key challenge, particularly in reducing reliance on personal income tax and ensuring long-term fiscal sustainability.
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With any questions about what this budget means for your or your business, please contact your local PKF taxation advisor. We will help you achieve your financial objectives.
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