BY Michelle Grattan
Tax cuts are the centrepiece of the Albanese government’s cost-of-living budget bid for re-election in May. The surprise tax measures mean taxpayers will receive an extra tax cut of up to A$268 from July 1 next year and up to $536 every year from July 1 2027.
Delivering his fourth budget on Tuesday night, Treasurer Jim Chalmers described the tax relief as “modest”. It will cost the budget $3 billion in 2026-27, $6.7 billion in 2027-28 and just over $17 billion over the forward estimates.
From July 1 2026 the 16% tax rate – which applies to taxable income between $18,201 and $45,000 – will be reduced to 15%. From July 1 2027, this will be further reduced to 14%.
The opposition immediately declared a fight over tax, saying it would oppose the budget tax cuts.
Shadow Treasurer Angus Taylor declared the Coalition would not support the budget tax changes, saying they “do nothing to address the collapse in living standards under Labor.”
“Seventy cents a day, in a year’s time, is not going to help address the financial stress Australian families are currently under. This is an election bribe by a weak prime minister,” Taylor said.
While cost of living is at the heart of the budget, apart from the tax changes, almost all the other measures have been announced. These include about $8.5 billion to strengthen Medicare (mostly to boost bulk billing) and $150 per household to extend energy relief until the end of the year. The government has also previously announced measures on cheaper medicines and improved access to childcare.
The opposition has so far refused to say what a Coalition government would do on tax. It will now be under pressure to quickly produce a counter tax policy for the election, which is likely to be called this weekend.
Chalmers presented a cautiously optimistic picture on the economy, while stressing the uncertain international times ahead.
“Our economy is turning the corner,” he said. “This budget is our plan for a new generation of prosperity in a new world of uncertainty.”
“It’s a plan to help finish the fight against inflation [and] rebuild living standards.”
After delivering two budget surpluses, this budget has deficits for the foreseeable future.
This financial year’s deficit is estimated at $27.6 billion, rising to $42.1 billion in 2025-26 (in the December 2024 update it was expected to be $46.9 billion). The cumulative deficits across the forward estimates reach $179.5 billion.
The budget predicts 335,000 in net migration in 2024-25, which is a fall of 100,000 from the previous year. It projects 260,000 for 2025-26.
Chalmers described the global economy as “volatile and unpredictable” with “storm clouds” gathering. “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,” he told parliament.
“Treasury expects the global economy to grow 3.25% for the next three years, its slowest since the 1990s. It’s already forecasting the two biggest economies in the world will slow next year – with risks weighing more heavily on both,” he said.
Chalmers said Australia was “neither uniquely impacted nor immune” from the international pressures. “But we are among the best placed to navigate them.”
Australia’s economic growth is forecast to increase from 1.5% this financial year to 2.5% in 2026-27, with the private sector “resuming its rightful place as the main driver of this growth.”
Unemployment is projected to peak at 4.25%, lower than previously anticipated. Employment and real wage growth will be stronger and inflation was coming down faster, Chalmers said.
“Treasury now expects inflation to be sustainably back in the [2%-3%] target band six months earlier than anticipated,” he said. “The worst is now behind us and the economy is heading in the right direction.”
Chalmers told his Tuesday afternoon conference the budget is a “story of Australian exceptionalism”.
He called the tax cuts “top-up tax cuts” that built on the recalibrated stage 3 tax cuts. He claimed the average household with two earners would save $15,000 over four years through a combination of all these tax cuts and energy bill relief.
Tax revenue from cigarettes has fallen to a 14-year low as many of the nation’s remaining smokers turn to the black market. The government expects to receive $7.1 billion in tobacco excise over the coming financial year, down from the record $16.3 billion in 2019–20.
Chalmers said the government would abolish “non-compete” clauses for most workers. “Non-competes are holding too many Australians back from switching to better, higher-paying jobs,” he said.
“More than three million Australians are captured by these clauses, including childcare workers, construction workers and hairdressers.”
The Australian Chamber of Commerce and Industry attacked the budget, saying it “lacks strategy and vision”.
ACCI chief executive Andrew McKellar said: “This is a budget which seems preoccupied with the short term, lacking a longer-term strategy to drive stronger economic growth by strengthening productivity and competitiveness.”
Michelle Grattan, Professorial Fellow, University of Canberra
This article is republished from The Conversation under a Creative Commons license. Read the original article.
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