Coalition to oppose Labor's $17b in tax cuts; Greens describe them as 'tiny tax tweak'
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More news: Reaction to Labor’s pre-election budget has focused on its political strategy and lack of long-term reform. The Coalition said it would oppose the $17.1 billion in tax cuts, calling them “an election bribe by a weak Prime Minister”.
What they said: Independent economist Chris Richardson said Labor’s tax cuts were “not great, but also not dangerous”, adding they are unlikely to fuel inflation given they are set to come in next year, when inflation is expected to be within the RBA’s range.
Richardson, a former Treasury official, praised the government’s move to ban non-compete clauses for those earning under $175k per year as “real reform”, saying “it is the loveliest thing in the budget.”
The Greens described them as a “tiny tax tweak” but won’t block them.
The Business Council of Australia welcomed the tax relief but CEO Bran Black warned the budget does not include policies that will drive investment and business-led growth.
“(It) doesn’t contain a sufficiently clear agenda for how we can grow the size of the pie,” Black said.
KPMG's chief economist called it “clearly, a pre-election budget” that delays critical reform and said spending had pushed the government sector’s share of the economy to its highest since WWII.
ACOSS said it welcomed some important investments in essential services, including health, public education and early childhood education. But CEO Cassandra Goldie said she was “astounded” that the centrepiece was “more dollars for everyone except those with the least”.
In contrast to Richardson, the Australian Industry Group CEO, Innes Willox, labelled the non-compete ban a “horror show”, warning it would spark litigation and undermine employers.
Chalmers unveils $17b in tax cuts in budget as gross debt hits $1 trillion
The news: Treasurer Jim Chalmers has unveiled $17 billion worth of tax cuts over four years as the centrepiece of his federal budget, which projects the Commonwealth's gross debt will for the first time crash through $1 trillion.
The income tax cuts, which apply to all taxpayers, were the big reveal on Tuesday after several measures, such as an extension of energy bill relief, student debt relief, new defence spending and efforts to bolster the Pharmaceutical Benefits Scheme, were released ahead of the official budget documents.
Next year, on 1 July 2026, the 16% tax rate for incomes between $18,201 and $45,000 will be reduced to 15%. The following financial year will see the tax rate cut again to 14%.
The policy will result in savings of $268 in 2026-27 and $436 in 2027-28 for those earning above $45,000.
"Every Australian taxpayer will get a tax cut next year and the year after, to top up the tax cuts which began last July. This will take the first tax rate down to its lowest level in more than half a century," Chalmers said.
The Medicare levy threshold is also being increased for singles, families and seniors and pensioners from 1 July 2024. The change will exempt about one million lower income taxpayers from the levy altogether. The policy will cost about $648 million over five years.
As flagged by Capital Brief, the government also announced $3 billion over two decades for its Future Made in Australia Act green industry policy, specifically to support domestic production of green metals such as aluminium and iron.
The bottom line: For the 2025-26 fiscal year the budget projects:
- An underlying cash deficit of $42.1 billion or 1.5% of GDP (vs a deficit of $27.6 billion or 1% of GDP in 2024-25)
- Gross debt is expected to hit $1.02 trillion or 35.5% of GDP ($940 billion or 33.7% in 24-25)
- Net debt is expected to hit $620.2 billion or 21.5% of GDP ($556 billion or 19.9% in 24-25)
The themes: Treasurer Jim Chalmers depicted a "new world of uncertainty" being shaped by "seismic changes" in his budget speech. He noted that the global economy is "volatile and unpredictable" and said "storm clouds are gathering", with rising trade disruptions and slowing growth in China and the US. Treasury expects the global economy to expand by 3.25% annually over the next three years — its slowest rate of growth since the 1990s.
But with inflation declining and low unemployment he said Australia is "in better shape than almost any other advanced economy" to navigate it.
What they said: "Trade disruptions are rising, China’s growth is slowing, war is still raging in Europe, and a ceasefire in the Middle East is breaking down."
"Treasury expects the global economy to grow 3¼ per cent for the next three years – its slowest since the 1990s."
"[But employment and real wage growth this year will be stronger, and participation will stay near its record high for longer. Inflation is coming down faster as well.
"All of this means the soft landing we have been planning and preparing for is looking more and more likely. Because of our collective efforts, the worst is behind us and the economy is now heading in the right direction."
What we noticed: The government announced plans to scrap non-compete clauses for "most" workers, citing the Productivity Commission's estimates that this could improve GDP by $5 billion.
A national licensing scheme to allow electricians to work across state borders is also underway, with plans to expand this to other occupations.
An extra $54 million has been put aside to "accelerate the uptake of modern methods of housing construction" to build homes faster.
Incentive payments are being doubled for apprentices to $10,000 for those training up in the construction sector and the first-home buyer focused Help to Buy scheme has been expanded to lift the property price and income caps higher to assist 40,000 people buy a home.
The source: Federal budget papers
