2025-26 Federal Budget: What’s Changing and What It Means for You and Your Taxes

ASF TAKEAWAYS: The 2025-26 Australian Federal Budget has landed, delivered by Treasurer Jim Chalmers on March 25, 2025. With an election looming in May, it’s no surprise this one’s got a strong “help the hip pocket” vibe — think tax cuts, energy rebates, and a sprinkle of healthcare goodies.

Specifically, the new budget introduces a significant rate reduction from 16% to 14% for middle-income earners, benefiting over 11.5 million Australian taxpayers. Furthermore, the comprehensive relief package extends beyond tax cuts, introducing Medicare bulk billing expansions and reduced PBS medicine costs. Notable changes include energy bill relief extensions and HELP debt reductions, creating a multi-faceted approach to easing financial pressures on Australian households. These reforms represent a substantial shift in fiscal policy, though economists remain divided on their long-term economic implications.

WHAT ARE THE KEY MATERIAL CHANGES?

Personal Tax Cuts: A Little Extra Cash, But Patience Required

The big news? More personal income tax cuts are coming — staged over two years. From July 1, 2026, the tax rate for incomes between $18,201 and $45,000 drops from 16% to 15%, then down to 14% from July 1, 2027. For someone on an average income (say $70,000-$80,000), that’s an extra $268 in your pocket in 2026-27, rising to $536 from 2027-28, on top of the cuts already in play since July 2024.

These adjustments follow the government's previously legislated tax cuts from July 2024, which had already reduced the rate from 19% to 16%. As a result, the tax bracket structure from July 2027 will be:

Notably, these rates do not include the 2% Medicare levy that remains applicable.

It’s not a windfall, but it’s a nice boost for low - and middle-income earners battling bracket creep. If you’re in this bracket, start thinking about how to use that extra cash — we are big advocates for knocking down some debt or pad your savings with any windfalls.

Energy Rebates: $150 to Keep the Lights On

The government’s extending its Energy Bill Relief Fund through to December 31, 2025, with $1.8 billion more on the table. That means every household and about a million small businesses will snag two $75 quarterly rebates — $150 total — for the second half of 2025. This follows the $300 relief from 2024-25.

No forms, no fuss—just automatic relief on your power bill. For households, it’s a small breather; for small business owners, it’s a bit of wiggle room in your cash flow. But it’s temporary, so don’t bank on it past 2025.

Healthcare Tweaks: Medicare and PBS Get a Boost

Health’s getting some love with $8.4 billion over five years for Medicare and cheaper meds via the PBS. From January 1, 2026, the PBS co-payment for non-concession card holders drops from $31.60 to $25 (pensioners stay at $7.70). Plus, the Medicare levy low-income threshold jumps 4.7% from July 1, 2024—singles earning up to $27,222 won’t pay it, saving up to $122 if you’re near the cutoff.

If you’re on regular prescriptions, that $6.60 saving per script could mean $85+ back in your pocket yearly. Low-income earners, this threshold bump might trim your tax bill next year.

Small Business Blues: Asset Write-Off Slashed

Here’s the sting for small businesses: the instant asset write-off is dropping from $20,000 to $1,000 from July 1, 2025. Anything over $1,000 after that goes into the slow drip of depreciation.

If you’ve got equipment or upgrades on your radar, move quick—lock in that $20,000 deduction before June 30, 2025. Post-July, your cash flow takes a hit as deductions stretch out.

Student Debt Slash: $19 Billion Off the Books

A one-off 20% cut to HELP and other student debts is wiping $19 billion off balances for 3 million Aussies (pending legislation). Repayment rules are also shifting to a fairer system with a higher threshold.

Got a HELP debt? This could slash thousands off what you owe, maybe even fast-track a home loan approval. Consider holding off paying lump sum repayments to this debt if possible.

Overall, the 2025 federal budget delivers substantial financial relief through targeted tax cuts benefiting 11.5 million Australian taxpayers, and has been well received. The two-phase reduction from 16% to 14% stands as the cornerstone of this reform, offering middle-income families annual savings up to $536 when fully implemented by 2027-28.

These tax measures work alongside expanded Medicare bulk billing, reduced PBS medicine costs, and extended energy rebates, creating comprehensive support for Australian households. Consequently, dual-income families could save up to $6,773 annually, while single parents receive specialized assistance through expanded payment eligibility.

Economic experts remain divided on long-term implications, particularly regarding the projected $64.37 billion budget deficit. The Treasury data suggests positive outcomes, predicting increased labor force participation equivalent to 30,000 full-time jobs. Therefore, despite deficit concerns, these reforms represent significant steps toward easing cost-of-living pressures across various family types.

The success of these reforms will ultimately depend on their implementation and economic conditions through 2027. These changes mark a substantial shift in Australian fiscal policy, aiming to balance immediate household relief with sustainable economic growth.