Budget breakdown: what you need to know

Treasurer Jim Chalmers last night handed down the 2025 federal budget, promising cost of living relief in anticipation of the upcoming federal election.

Addressing parliament, Chalmers called the global economy “volatile and unpredictable,” referencing the COVID-19 pandemic, rising inflation and the threat of tariffs. 

However, he said there was still reason to be optimistic for Australia’s future,

“We’re emerging from this spike in global inflation in better shape than any other advanced economy,” he claimed.

Flavio Menezes, a professor of economics and director of the Australian Institute for Business and Economics at the University of Queensland, had mixed reviews of the budget.

“It doesn’t get my A+ for the best budget ever. But I think under the circumstances it’s not bad,” he said.

Menezes expressed concern the budget lacked long-term solutions for future generations, especially surrounding climate change.

“I’m talking really about my kids. And maybe their kids,” he said. “There’s very little there for them.

“There’s a lot of short-term, medium-term, but not really a concept of long-term.”

Here is a breakdown of the full federal budget:

Tax cuts

The announcement of tax cuts came as a surprise, with the government promising to deliver additional cuts across 2026 and 2027 on top of those that have been rolling out since 2024.

• From 1 July 2026, the 16 per cent tax rate, which applies to taxable income between $18,201 and $45,000, will be reduced to 15 per cent
• From 1 July 2027, this tax rate will be reduced further to 14 per cent

You can calculate your tax saving using this calculator.

 

Healthcare

Healthcare was a major investment in the budget, especially increasing the affordability of medication.

Prices of medications on the Pharmaceutical Benefits Scheme (PBS) will be lowered for everyone from January 2026, with the maximum script payment to be reduced from $31.60 to $25.00. Prescriptions for pensioners will also remain frozen at $7.70.

While addressing PBS reforms, Chalmers’ speech took a dig at the Pharmaceutical Research and Manufacturers of America’s recent lobbying of Donald Trump to place tariffs on Australian pharmaceutical imports.

“We are strengthening it because Australians need us to, not weakening it because American multinationals want us to,” he said. 

New medicines have also been added to the PBS, including treatments for endometriosis, lymphoma, menopause and new oral contraceptives, with the government targeting women’s health as a priority.

Further healthcare announcements include $7.9 billion to be invested in bulk billing GPs, $644 million to fund 50 new Medicare Urgent Care Clinics and $1.8 billion of additional funding for public hospitals.

Menezes has described both announcements as an “effective cost of living measure”.

“[It] helps both with the cost of living, but also ensures that people who need to go to see a GP do so. There are no financial barriers for someone to get medical assistance, medical care,” he said.

To address the rising cost of living, Chalmers announced the Medicare levy low-income threshold will increase by 4.7 per cent for singles, families, seniors and pensioners from July 1, 2025, which will allow over one million Australians to continue to be exempt from paying or pay a reduced Medicare levy rate.

 

Cutting student debt

The government has promised reforms to higher education to assist students with rising costs. These reforms however remain subject to the passage of legislation.

University students are set to have Higher Education Loan Program (HELP) debt wiped significantly, with the budget promising $19 billion to cut 20 per cent off all student loans.

The amount that people need to earn before they begin to repay their HELP loan will also increase from $54,435 to $67,000.

For TAFE students, 100,000 free places will also be made permanent from January 1, 2027, aiming to ease cost of living pressures for students.

 

Housing and rental

Chalmers promised the budget will deliver on housing, with a plan to build 1.2 million homes over the next five years.

“We are tackling the housing shortage from every responsible angle,” Chalmers said.

For first home buyers, the government’s Help to Buy program is set to be expanded, with around $800 million designated to lift the property price and income caps, aiming to make the scheme more accessible.

However, foreign buyers will be banned from purchasing existing dwellings for two years from April 1. The government will also provide the ATO with $8.9 million to “target land banking by foreign buyers and ensure land in Australia is put to productive use”.

Renters received some budget promises, with the government announcing it will increase the maximum rates of Commonwealth Rent Assistance by 45 per cent for around 1 million households.

New frameworks will also be introduced to outline reasonable grounds for eviction and limit rental increases to once a year.

However, non-for-profit organisation YWCA Australia has criticised the budget for not providing enough long-term affordable housing solutions.

“Tax cuts will put money back in people’s pockets, and that’s important — especially for women and young people facing soaring rents. But without more affordable housing, short-term relief won’t solve long-term insecurity,” Kate Whittle, general manager of advocacy and external affairs, said in a statement.

“Commonwealth Rent Assistance increases are helping, but rental stress remains at record highs. We need stronger protections for renters and a major boost to social and affordable housing to ease the pressure,” said Whittle.

 

Early childhood care and education

The early childhood education and care sector is set to receive a major investment of $5 billion. 

The Child Care Subsidy Activity Test will be replaced with a new three-day guarantee, which will provide three days of subsidised early childhood education and care to families, costing the government $426.6 million.

“We believe every child has the right to an early education, to ensure that they don’t start school behind,” said Chalmers.

Another $1 billion will be used to establish the Building Early Education Fund, to support 160 new or expanded child care services in areas of need, while early childhood education and care workers will receive $3.6 billion to support a wage increase of 10 per cent from December 2024, and a further 5 per cent from December 2025.

 

Small businesses

The government will extend energy bill relief until the end of 2025 for every household and around one million small businesses, which will be received in the form of two $75 rebates off electricity bills through to the end of the year.

Addressing new businesses that have been created over the last three years, Chalmers said: “We respect and admire the hard work and aspiration and sacrifice.” 

Support will also be provided to the hospitality industry and alcohol producers by pausing indexation on draught beer excise and excise equivalent customs duty rate.

 

First Nations people

The budget promised to increase opportunities for First Nations businesses, by investing $3.4 million over three years from 2025-26 on top of the previously promised $23.9 million, aiming to establish mentoring and coaching programs for First Nations businesswomen and entrepreneurs.

From July 1, the government will provide $842.6 million to Northern Territory Aboriginal Investment to “assist remote communities to access economic development and employment opportunities, and improve health, safety and education outcomes”.

The government has also promised to “support better life outcomes for First Nations Australians and close the gap”, including investments in mental health support, health checks and building the First Nations health workforce.

 

Aged care

The budget will provide $291.6 million to deliver aged care reforms and implement recommendations from the Royal Commission into Aged Care Quality and Safety.

Aged care nurses are also set to receive a pay rise.

“Tonight we’re providing an additional $2.6 billion to fund pay rises for aged care nurses from March this year, so that the workers we trust to care for our parents and grandparents get paid properly for the work that they do,” Chalmers said.

UnitingCare Australia has welcomed the investment, but warned gaps in funding remain.

“As one of the biggest drivers of aged care reform, we remain deeply committed to its success,” UnitingCare Australia national director, Claerwen Little said in a statement.

“Our greatest concern is for older Australians without means and ensuring they continue to access quality care when they need it,” Little added.

“Overall, tonight’s budget takes some positive steps, but more is needed to build a truly fair and resilient Australia,” said Little.

Main image of Parliament House by Wikimedia/Dietmar Rabich.