Budget 2025: Labor’s tax cut in a sea of red

Jim Chalmers has set up a tax fight with Peter Dutton weeks out from the May election after unveiling $17.1bn in modest relief, which was rejected by the Coalition as a ‘cruel hoax’.

Jim Chalmers has handed down his fourth budget.

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Jim Chalmers has set up a tax fight with Peter Dutton weeks out from the May election after unveiling $17.1bn in modest relief for millions of low-income workers, which was immediately rejected by the Coalition as a “cruel hoax”.

With Labor’s tax package promising Australians earning $45,000 or more an extra $5 a week from July next year and $10 a week from 2027-28, opposition Treasury spokesman Angus Taylor attacked the offering as an “election bribe”.

Ahead of the Opposition Leader’s budget-in-reply speech on Thursday night, Mr Taylor said the Coalition would not support the tax changes and left the door open to go to the election with an alternative tax cuts plan.

Dr Chalmers’ fourth budget was headlined by a decade of deep deficits, multi-billion dollar sweeteners for Middle Australia voters in battleground electorates, $648m in Medicare exemptions for one million low-income earners and the minimalist tax cuts.

Despite Dr Chalmers declaring in his budget speech that the tax cut “top-ups” would take the first tax rate down to its lowest level in more than half a century, Treasury estimates that the modest tax relief measure will be eaten up by bracket creep by 2031-32.

With the budget not expected to return to balance until 2035-36, after Treasury pushed out its ­projections by a year, it means ­future governments will rely on bumper personal income tax takes driven by bracket creep to get the budget back to surplus.

Dr Chalmers, whose budget was panned by business groups and crossbenchers, was accused of opting to put short-term political fixes and deficits ahead of structural reforms and clamping-down on record spending levels.

The Australian understands that weeks before Anthony Albanese decided to push out an April 12 election and hold the budget in the wake of Cyclone Alfred, Dr Chalmers had conceived the idea of the tax cuts package to heap pressure on Mr Dutton.

Labor intends to combine its new tax cuts with the government’s revamped stage three tax cuts changes that came into effect last year to promote its efforts in helping voters keep more of their own money.

Mr Dutton on Thursday night is expected to attack Dr Chalmers for overseeing an inflation-fuelled cost-of-living crisis, record high electricity bills, housing shortages and massive spending levels.

The budget confirmed a spending spree ahead of the May election, with $34.9bn in new on-budget policies in addition to more than $100bn in off-budget spending.

It also included a $1bn election war chest which will fund campaign policies that the Albanese government did not announce on Tuesday night.

However, when including off-budget expenditure, the headline cash balance over the same period is expected to hit a mammoth $283.4bn. Gross debt to GDP is expected to peak at 37 per cent in mid-2030, before falling to 31.9 per cent in 2036.

Since January, the Albanese government has rolled out more than $60bn in announcements ­including the $8.5bn Medicare package, $1.8bn to extend energy bill relief until the end of the year, $7.2bn for the Bruce Highway upgrade in Queensland and tens of billions of dollars for road, rail, infrastructure, cheaper medicines, health, education and housing programs.

Asked by The Australian whether balancing the books was now from a bygone era, Dr Chalmers said “this is a budget on the eve of an election” and cited economic reforms including ­allowing workers to move more freely between employers. “If you look at the net policy decisions – about $35bn – there was $39bn in the March 2022 budget and that’s when inflation was higher and galloping. Now it’s lower and falling, so less than what our predecessors did,” Dr Chalmers said.

Pressed on whether Treasury had adopted overly ambitious forecasts in relation to economic growth, unemployment, inflation and debt projections, Dr Chalmers said “I’m an optimistic fella”.

While the budget positions Australia as a global over-­performer, Treasury cites countries like New Zealand and Britain as performing poorly.

“The Australian economy is genuinely turning a corner and it’s doing so with all of this ­international pressure and that makes it more exceptional,” he said. “If you look around the world not many countries have got ­inflation coming down, and growth starting to build ­momentum.

“We’ve got the lowest ­unemployment rate of any ­Australian government in the last 50 years. People around the world look at our experience here and would prefer to be in our position than theirs.”

Mr Taylor said: “Labor’s cruel hoax tax changes in 2026-27 fail to restore the standard of living you have lost after three years of Labor.

“The Coalition will not support these tax changes that 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.”

The budget papers reveal that, compared with Labor’s first two budgets, when the government banked almost 90 per cent of ­record revenue upgrades, that level has now dropped to 69 per cent of tax receipts since 2022.

Over the same period, the ­Albanese government claims it has “taken $51.1bn in unavoidable decisions … to address urgent and unforeseen issues (and) guarantee the continuity of funding for the essential services that Australians rely on”.

With debt repayments and NDIS costs dominating the highest structural spending pressures in the budget, Treasury has ­forecast a dramatic reduction in NDIS expenditure that aligns with Labor’s target of no more than 8 per cent growth in spending by July 1 next year.

The budget papers estimate $3.9bn in lower spending in the NDIS over five years to 2028-29, including $800m less in 2024-25. The 10.3 per cent growth in NDIS costs across 2024-25 contrasts with 22.3 per cent in the last year of the Morrison government.

Pressed on how two surpluses had turned into a $27.6bn deficit in 2024-25, Dr Chalmers said “that $27bn deficit is almost half of what it was when we came to office”.

“When we came to office there were only deficits,” the Treasurer said. “We turned two of them into surpluses and we shrunk this year’s deficit. We’re making ­progress.”

With Labor brushing aside US government pressure to ramp up defence spending, Dr Chalmers conceded that Donald Trump’s White House had increased global uncertainty.

“We’re very focused on the dangers presented by escalating trade tensions,” the Treasurer said. “It’s not only the new policy agenda from the new administration in the US which is causing global economic uncertainty. That’s a big part of it obviously.

“But China is slowing, we’ve got a war in eastern Europe, we’ve got a collapsing ceasefire in the Middle East, we’ve had political division and dysfunction in places like South Korea and to some extent France.

“There’s a lot of global economic uncertainty and trade tensions are a big part of that story. But it’s not the whole story. Our job is to keep managing the ­budget responsibly. Rebuild incomes, make the economy more resilient, make sure we keep the reform wheels turning in our economy, competition policy and in other ways. To make sure we take out insurance to all of this global risk. That’s really a huge defining influence on the budget.”