Federal budget 2025: The ‘downright weird’ flaw with Jim Chalmers’ new tax cuts

The government’s newly announced tax cuts are already being called too small. But that’s not the weirdest thing about them.

Analysis

Then-treasurer Peter Costello learned the hard way, two decades ago, when he handed out a $5-a-week tax cut.

He turned to the cameras with a self-satisfied grin, expecting a round of applause, and instead promptly got dragged for providing pocket money that would barely cover an egg sandwich.

The front page of Sydney’s Daily Telegraph sledged the tax cuts as “piddling”, an unforgettable epithet even 22 years later.

Liberal frontbencher Amanda Vanstone accurately observed that $5 wouldn’t buy you a sandwich and a milkshake, a hot take that was promptly weaponised, somewhat unfairly, as an attack on John Howard’s tax cuts.

Peter Costello in Canberra’s budget lockup in 2003.

So, what to make of Jim Chalmers giving us his big razzle dazzle – a micro tax cut of an extra $5, a whole two decades down the track?

Talk about shrink-flation.

Now, to be fair, the Treasurer has some big challenges that prevent him from dishing out more significant tax cuts.

First, the budget is hardly rolling around in surplus.

Second, to hand out massive tax cuts would be to risk being accused of fuelling inflation.

Third, he’s already dished out tax cuts. Dr Chalmers is making the point that, cumulatively, the government’s total tax cuts are worth about $50 a week, not a mere $5.

As he points out, he is also giving a $150 energy rebate to every household, free GP visits (by boosting bulk billing), and the cheapest PBS medicines in 20 years at just $25 a script.

Fair enough. But when you’re banging on about providing cost of living relief, while giving people just $5 a week and then $10 a year later, you do risk looking a little stingy.

Jim Chalmers delivering his budget speech in parliament on Tuesday night. Picture: Hilary Wardhaugh/Getty Images

What’s worse, the budget papers show the income tax take is rising as a proportion of revenue. In other words, Dr Chalmers is raking it in and giving just a tiny sliver back.

Bracket creep is clawing back more tax, and an itty bitty tax cut doesn’t really touch the sides. So the government runs the risk of looking like it is gouging us now and returning a mere fraction of it later.

What’s downright weird though, and a little fascinating, is that after getting into a flap about the fairness of the original tax cuts, which delivered windfall gains to the rich, Dr Chalmers is now offering what might be described as a flat tax cut.

Remember, it was this Treasurer who took the scalpel to Scott Morrison’s original tax cuts and sliced in half the cuts to the rich, from $9000 to $4500, to boost tax relief for low and middle income earners.

Anthony Albanese's son, Nathan Albanese and Jody Hayden Picture: NewsWire / Martin Ollman

But these new, teensy tax cuts are not like that at all.

It doesn’t matter if you earn $50,000 or $500,000. You get the same tax cut. You get $268 a year from July of 2026, and $536 a year from 2027.

Rich or poor, you get the same cost of living relief. That means Prue from Double Bay can spend her tax cut on Botox, and Debbie from the outer suburbs who can’t pay her electricity bill gets the same amount to pay for her groceries.

It’s not targeted at all. Everyone earning over $45,000 gets the same.

In fact, it’s even worse for really low income earners. High school students who work part time jobs, for example.

If you are under the $18,200 tax free threshold, you get a big, fat nothing.

And if your income falls between $18,200 and $45,000, you get less than the people earning more. For instance, if you’re in a part time job earning $30,000, you get a tax cut of around $111 a year. That’s $2 a week. A literal gold coin donation.

In something of a pea and thimble trick, the Treasurer said the average earner will have $536 more in their pocket each year during his budget speech, before adding the caveat “when they are fully implemented”.

You will not get that $536 per year in full until July of 2028. Don’t spend it all at once.

Opposition Leader Peter Dutton and Treasurer Jim Chalmers during the latter’s budget speech. Picture: Hilary Wardhaugh/Getty Images

It begs the question: if you couldn’t buy a sandwich and a milkshake with $5 in 2003, what on earth can you get with it 20 years later?

A flat white? A McFlurry on a sale day? A Golden Gaytime at the servo? Two cans of cat food, but only if they are on special?

“I am not going to give people free advice on how to spend their tax cuts,” the Treasurer told news.com.au.

“We are topping up the tax cuts. We know they are modest in isolation, but they are meaningful in combination.

Jodie Hayden, Anthony Albanese’s fiancee. NewsWire / Martin Ollman

“Three rounds of tax cuts, about $50 a week when you add them all up. We know there’s an appetite to do more.”

Asked about the comparison with Peter Costello’s own $5-a-week tax cut in 2003, which was so roundly mocked, the Treasurer said he wanted to make sure the government could provide a little more cost of living relief.

“I understand there’s always appetite for governments to do more,” he said.

“We’ve got budget constraints.”

Despite Dr Chalmers’ offer of a stipend so small that it would barely buy you a McFlurry, the cost to the budget is huge, because it’s delivered to every full-time worker.

The cost to the budget, in terms of revenue foregone, is $17 billion by 2030 – an impost the Treasurer insisted is worth it to help relieve bracket creep and reward workers.

For a worker on average earnings, the combination of this new tax cut and the old, previously announced tax cuts add up to a total of $1922 next year and $2190 the year after.

Over the decade from 2024, the average worker will pay $30,000 less tax than they would have if the Morrison and Albanese governments had not embarked on and then implemented tax reform.

The Treasurer and Prime Minister are hoping and praying that voters focus on that number, and not the tiny $5-a-week they might get next year if Labor is re-elected.

Originally published as Federal budget 2025: The ‘downright weird’ flaw with Jim Chalmers’ new tax cuts