The five-minute budget: Everything you need to know

Treasurer Jim Chalmers has given every Australian a tax cut in his pre-election budget. There’s also power bill relief, cheaper medicines and a boost for first home buyers.

But with a decade of deficits on the horizon, US President Donald Trump’s trade wars, population growth and an ageing population that demands more government spending, Tuesday’s budget papers also reveal the challenges the next government will confront.

Here’s the budget broken down.

Everything you need to know about the budget.Credit: Marija Ercegovac

Cost of living

• Every taxpayer will get an income tax cut. The first marginal tax rate will be reduced from 16 to 14 per cent over two years, starting in July next year. It means workers will get a $268 tax cut in 2026-27, which becomes $536 a year from 2027-28. The government will forfeit $17.1 billion in tax income over the next five years under this measure. The bulk of the benefit goes to the 8.8 million workers earning between $45,000 and $135,000.
• All households and small businesses will get an extra round of energy bill relief. There will be $150 wiped off power bills for the final six months of this year – which should reduce consumer costs by 7.5 per cent – at a cost of $1.8 billion to the budget.
• Several measures aim to make healthcare cheaper. The maximum co-payment for subsidised medicines will reduce from $31.60 to $25 from January, meaning people save $6.60 on each script. A separate $8.5 billion in spending will give GPs incentive payments if they bulk-bill their adult patients for the first time.
• Students and graduates will have 20 per cent of their student debt wiped. There are also measures to make student loans easier to pay off, by reducing repayment rates and raising the income threshold at which people need to start paying money back.

Keep in mind: Alleviating the cost-of-living crunch is the government’s top priority in this pre-election budget, but with the national accounts heading back into deficit after two years of surpluses, Labor has limited means to offer financial help without driving inflation.

Behind the big numbers

• The budget will head into deficit after back-to-back surpluses – meaning the government’s spending is greater than its income. The deficit for 2024-25 is $27.6 billion. The figure will deepen to $42.1 billion in 2025-26.
• The outlook for economic growth is modest but better than expected. Growth is expected to lift from 1.5 per cent this financial year to 2.25 per cent in 2025-26. This will be driven by the private sector rather than government spending.
• Inflation is falling faster than previously forecast and should remain in the Reserve Bank’s target band of 2 to 3 per cent. This will help the RBA, which is expected to cut interest rates twice by September.
• The total tax intake will hit $663 billion this financial year, before climbing to $694 billion next financial year. Income tax brought in the most money for the government, while tobacco excise revenue has collapsed another 15 per cent.
• Real wages are forecast to grow by 0.5 per cent in 2024-25 and 0.25 per cent in 2025-26. Unemployment remains near record lows.

Keep in mind: The government is spruiking its economic management as wages continue to outpace inflation, and households can spend more without the threat of an interest rate rise. But the government’s first deficit – and the prospect of a decade of further deficits – will expose it to political attacks that it hasn’t curbed spending enough.

Population growth and immigration

• The budget assumes that net overseas migration will have grown by 335,000 people this financial year. This is a lower figure than the mid-year budget’s estimate of 340,000 for 2024-25 – the first time the government has revised its estimates down since the pandemic – but more than the 260,000 that was forecast in last year’s budget.
• Australia’s net migration is estimated to be 260,000 next financial year. This is the same as the mid-year budget update’s estimate for 2025-26, and slightly higher than the previous budget’s forecast of 255,000.
• The budget assumes that NSW will keep losing people to interstate migration, with 28,300 residents leaving the state in 2024-25, and 24,300 leaving in 2025-26. Victoria will grow slightly – with 1800 new interstate migrants this financial year, and 2800 next year. Queensland picks up the lion’s share of interstate migrants, with 26,500 new residents in 2024-25 and 23,200 in 2025-26.

Keep in mind: The government has overshot the budget’s net overseas migration targets every year since the pandemic, as people keep coming into the country and fewer than expected leave. But recent signs suggest efforts to curb migration are finally working: this month the Australian Bureau of Statistics revealed population growth is down to its lowest level in two years, the reason for the forecasts being revised down.

Housing and infrastructure

• The government is expanding eligibility criteria for its first home buyers′ Help to Buy scheme, where it contributes up to 40 per cent of the purchase price. Income caps for access will rise from $90,000 to $100,000 for singles, and from $120,000 to $160,000 for joint applications, while the maximum purchase price in each city will also rise to reflect higher home prices. This will cost $850 million over four years.
• An extra $54 million is being paid to states and territories for programs that lift the construction of prefabricated and modular homes.
• The Australian Taxation Office will receive $5.7 million to enforce a ban on foreign investors buying existing homes for two years from next month.
• More workers will be encouraged into the housing sector by doubling incentive payments – from $5000 to $10,000 – for construction apprentices.
• There will be $3 billion allocated to finishing the NBN rollout. Federal funding will also go to major projects including Queensland’s Bruce Highway ($7.2 billion), projects in western Sydney ($2.3 billion) and Victoria’s Sunshine station on the Melbourne airport rail line ($2 billion).

Keep in mind: The lack of new housing relative to demand is a key driver of the nation’s housing affordability crisis. With states and councils controlling most planning levers, it’s a fraught political issue for the federal government. These modest measures give Labor something to talk about but supply remains a heated problem.

Health, education and social services

• Bulk-billing ($8.5 billion) and cheaper medicines ($690 million) are part of significant health spending. This also includes creating 50 urgent care clinics ($644 million), extra public hospital funding ($1.8 billion) and better women’s health services for reproductive health and menopause ($793 million).
• Federal spending on schools will rise from 20 to 25 per cent of their resourcing standard, under funding agreements with state and territory governments that will ensure public schools are fully funded under the Gonski reforms. This adds to the government’s three-day childcare guarantee, and wage rise for workers, accounting for $5 billion of budget spending. There are also 100,000 fee-free TAFE places until 2035, at a cost of $1.6 billion.
• The National Disability Insurance Scheme will come in at a cost of $48.5 billion for 2024-25. This is $250 million less than the last budget forecast – the first time the scheme has come in under expectations – and follows government reforms to make the scheme more sustainable. It will cost $52.3 billion next financial year, growing by 8 per cent.
• Aged care services have cost $1 billion more than anticipated this financial year. Spending reached $37.1 billion, while aged care pension payments rose to $62 billion, meaning the federal government spent more than $100 billion on older Australians for the first time.

Keep in mind: Government spending on health and aged care continues to grow as Australians get older, and their healthcare becomes more complex. Pair this with an election campaign that Labor wants fought on its traditional strengths of health and education, and you have significant spending increases. These will help the government pitch its point of difference to voters, but they raise difficult questions about budget management and spending restraint.

Defence, industry … and Trump

• The government will boost defence spending by $10 billion over four years. Funding for defence is about 2 per cent of gross domestic product, but this will grow to 2.3 per cent by the early 2030s.
• A $20 million “Buy Australian” advertising campaign will encourage shoppers to support local businesses amid the uncertainty of US tariffs and global trade wars.
• The government will also spend $3 billion to support the production of Australian-made green metals, like aluminium and iron. A $2 billion extension of Australia’s green bank, the Clean Energy Finance Corporation, will also fund private projects.

Keep in mind: Donald Trump is expected to impose another round of tariffs on major economies, so the budget is supporting the local economy by backing growth in Australia’s resources sector and launching an ad campaign to get people buying local goods. But defence spending doesn’t go as far as the 3 per cent that Trump is demanding of America’s allies.

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