The 2025-26 Federal Budget presented by the Federal Treasurer, the Hon Dr Jim Chalmers MP, acknowledges economic challenges but remains cautiously optimistic in the dawn of an election. Inflation has moderated, growth picked up at the end of last year, and the labour market has remained strong, with real wages starting to rise. However global uncertainty, trade tensions and natural disasters continue to pose risks to the economy.
Cost-of-living relief is a key focus in this year’s budget, with personal income tax cuts, extended energy bill support, cheaper medicines and increased bulk billing incentives. It also expands subsidised early childhood education and includes plans to build 1.2 million new homes, invest in social housing, and support renters.
To drive growth, the budget includes additional support for competition reforms, support for small businesses, and investments in green manufacturing through the “Future Made in Australia” program. Infrastructure investment remains a priority to strengthen the economy. While challenges remain, the government believes that Australia is in a strong position to manage economic uncertainties.
Fiscal outlook
The budget forecasts a $27.6 billion deficit in 2024-25 rising to $42.1 billion in 2025-26. Gross debt is set to peak at 37% of GDP in 2029–30 before declining to 31.9 % by 2035–36. The government has returned 69% of tax receipt upgrades to the budget, down from 87% in 2023-24, aiming to reduce future interest payments.
Key fiscal measures in the budget include new personal income tax cuts in 2026 and 2027. Tax cuts introduced since 2024 are expected to increase household disposable income by 1.9% by 2027–28.
Table 1- Key Budget Parameters
Source: 2025-26 Budget Paper 1, Table 3.1: Australian Government general government sector budget aggregates
Economic outlook
Inflation is moderating without stalling growth, unemployment remains low and real wages are rising. Interest rates have started to fall, and economic growth rebounded at the end of last year, with momentum expected to improve. However, global uncertainty remains high due to trade tensions, conflicts in the Middle East and Europe, and challenges in China. Trade disruptions, tariffs, and market volatility could impact global and domestic economic activity, investment, and prices. Weather-related events, like ex-Tropical Cyclone Alfred, have also affected industries, infrastructure, and growth.
Despite these risks, government is optimistic that the economy is on track with household incomes, employment growth and lower inflation boosting consumption. Real household disposable income is forecast to be nearly 8.75% higher by 2026–27 compared to 2023–24.
Export growth is expected to slow, particularly in services and non-rural commodities, while infrastructure spending will support demand for imports.
Table 2 – Economic Outlook
Source: 2025-26 Budget Paper 1, Table 1.1 Major economic parameters and Table 2.2 Domestic Economy – detailed forecasts
Key areas of focus for the AFGC
Consumer
Tax cuts. From July 2026, the tax rate for incomes between $18,201 and $45,000 will drop from 16% to 15%, then to 14% in July 2027.
Remote community support. Reducing the cost of 30 essential products, like milk and vegetables, in remote First Nations communities to ease cost-of-living pressures.
Competition
ACCC funding. $38.8M to boost investigations and enforcement in supermarket and retail sectors.
Merger rules. More power to ACCC to review transactions that could harm competition.
Ban on unfair trade practices. Targets subscription traps and strengthens consumer protection enforcement.
Supermarket competition. $240M to help states and territories to streamline planning and zoning to enable supermarket entrance.
Fresh product supplier support. $2.9M over three years to help suppliers understand and enforce their rights under the Food and Grocery Code of Conduct.
Energy
Energy Bill relief. $1.8Bn to extend energy bill rebates to households and small businesses through 2025.
Clean energy Finance Corporation. $2Bn to fund renewable energy, energy efficiency, and low-emissions technology investments.
Energy Efficiency Grants. $56.7M to provide up to $25,000 to small and medium businesses to upgrade inefficient appliances and heating systems.
Industry
Food Security Strategy. $3.5M to develop a national plan to secure food supply.
Buy Australian. $20M to encourage consumers to purchase locally made products.
Tax avoidance. $717.8M to expand the ATO’s monitoring of large domestic and multinational taxpayers over four years from 1 July 2025.
Investor support. A “Front Door” service to be launched in September 2025 to guide major investors and prioritise
Supply chain and infrastructure
Cybersecurity support to small businesses. $60M to fund programs to help small businesses improve cyber resilience and digital capabilities.
Bruce Highway upgrades $7.2 Bn to enhance safety and efficiency on this key transport route.
Infrastructure Investment Program. $17.1Bn over 10 years to focus on major road and rail projects to boost productivity and resilience including:
$2Bn to upgrade Sunshine station
$1Bn for the Road Blitz with the Victorian Government
$1Bn for supporting the South West Sydney Rail Extension
$200M for the duplication of the Stuart Highway from Darwin to Katherine.
Disaster recovery funding. $1.2Bn to support response efforts for events like ex-tropical cyclone Alfred.
Jobs and Labour
Ban on non-compete clauses. Workers earning under $175,000 will no longer be restricted by non-compete agreements.
Wages and mobility. Businesses will be banned from fixing wages or using “no-poach” agreements that prevent employees from moving to competitors.
Biosecurity
Avian influenza preparedness. $3M for 2025-26 to support states and territories in strengthening Australia’s response to bird flu outbreaks.
Environment
Recycling & packaging. $46M to fund programs to improve recycled plastic packaging and boost regional and remote recycling.
Trade
Australia-India Trade Fund. $16M to support projects to reduce trade and regulatory barriers.
