Federal Budget 2025 Overview

On Tuesday night, Treasurer Jim Chalmers unveiled the 2025 federal budget. Due to the impact of Cyclone Alfred, an election has not yet been called, resulting in a relatively subdued budget. The main budget document was notably concise at just 93 pages, compared to the usual 200+ pages. The standout announcement was an unexpected "modest but meaningful" tax cut for all individuals, which has already been approved by parliament.

Below is a summary of the key changes that may affect Wealth Effect Group clients:

Tax Cuts

The Government will implement new tax cuts for all Australian taxpayers starting from 1 July 2026. The current 16% tax rate, applicable to taxable incomes between $18,201 and $45,000, will be reduced to 15% on 1 July 2026, and further to 14% from 1 July 2027. This reduction in the lowest marginal tax rate means individuals will see a tax saving of $268 next year, and a total reduction of $536 per year from 1 July 2026, compared to the 2024-25 tax rates.

Additionally, the Medicare levy low-income thresholds for singles, families, and seniors and pensioners will be increased from 1 July 2024. This adjustment aims to provide cost-of-living relief by ensuring that low-income individuals remain exempt from paying the Medicare levy or pay a reduced rate.

The tax cuts are part of a broader strategy to stimulate economic growth by increasing disposable income for individuals. By reducing the tax burden on lower-income earners, the government hopes to boost consumer spending, which in turn can drive economic activity and job creation. These tax cuts are designed to be phased in gradually to ensure a smooth transition and to allow taxpayers to plan accordingly.

Superannuation

The Transfer Balance Cap (TBC), which limits the amount that can be transferred into a retirement income stream, will increase from $1.9 million to $2 million on 1 July 2025. This change allows retirees to invest a larger portion of their retirement savings in a tax-free environment.

Superannuation contribution caps will remain unchanged for the 2025/26 financial year, staying at $30,000 per annum for concessional contributions and $120,000 per annum for non-concessional contributions. However, it is anticipated that these caps may increase for the 2026/27 financial year.

As previously planned, the superannuation guarantee rate will rise from 11.5% to 12% on 1 July 2025.

The Division 296 Bill, which aims to reduce tax concessions on earnings from superannuation balances exceeding $3 million, is still pending in the Senate. If the Bill does not pass before the Federal election is announced, it will lapse.

Energy

To alleviate the burden of rising energy costs, the Government has proposed extending the existing energy bill rebate for an additional six months, until 31 December 2025. Eligible households and approximately 1 million small businesses will each receive $150 from 1 July 2025 ($75 per quarter).

HELP (Higher Education Loan Program)

The Government has introduced measures to reduce student debt, with significant changes coming in June 2025. There will be a 20% reduction in the outstanding level of HECS/HELP debt, providing substantial relief to those with student loans.

Furthermore, the income thresholds for mandatory repayments will be increased. From 1 July 2025, the threshold will rise from $54,435 in 2024–25 to $67,000 in 2025–26, easing financial pressure on recent graduates and early-career professionals.

Child Care Subsidy

Starting January 2026, the Government will replace the Child Care Subsidy (CCS) Activity Test to ensure at least three days of subsidised early childhood education and care (ECEC) per week for all children in need.

All families will be eligible for at least 72 hours of subsidised ECEC per fortnight (three days per week), regardless of their activity levels. Families can still receive up to 100 hours of subsidised ECEC per fortnight if they meet activity requirements or have a valid exemption. Families earning over $533,280 in 2024-25 will not be eligible for subsidised care, consistent with current settings.

Home Ownership Equity Scheme

The Government has announced an $800 million expansion of the Help to Buy shared equity scheme. This expansion increases income caps to $100,000 for individuals and $160,000 for couples and single parents, broadening eligibility to nearly all first home buyers. The initiative aims to assist 40,000 households in purchasing homes by providing an equity contribution from the government.

Small Business Implications

The 2025 federal budget has several implications for small businesses, both positive and negative:

Positive Implications:

1. Energy Rebates: Eligible small businesses will benefit from an extension of the energy bill rebate, receiving $150 from 1 July 2025 ($75 per quarter). This measure aims to help small businesses manage rising energy costs.

2. Improved Payment Times: The government has allocated $25.3 million to support the Payment Times Reporting Regulator, which will implement reforms to improve payment times for small businesses. Additionally, $23.3 million has been earmarked to increase e-invoicing adoption, which will help reduce the risk of scams.

3. Mental Wellbeing Support: Funding of around $10.8 million will continue to provide financial counselling and mental health support for small business owners, addressing the high stress levels often associated with running a small business.

Negative Implications:

1. Instant Asset Write-Off: The $20,000 instant asset write-off threshold for the 2024–25 income year has been legislated. However, from 1 July 2025, this threshold will revert to the legislated $1,000 for the first time in nearly a decade. This change could significantly impact small businesses that rely on this provision to invest in new equipment and assets.

2. Cost of Doing Business: While there are measures to support small businesses, the overall cost of doing business remains a concern. High inflation and potential interest rate increases could offset some of the benefits provided by the budget.

Implications for Businesses

The tax cuts announced in the 2025 federal budget primarily target individual taxpayers, but they can also have indirect effects on businesses. Here are some potential implications for businesses:

Increased Consumer Spending: With the reduction in the lowest marginal tax rate, individuals will have more disposable income. This increase in disposable income can lead to higher consumer spending, which benefits businesses, especially those in retail, hospitality, and other consumer-driven sectors. Increased spending can drive demand for goods and services, potentially leading to higher revenues for businesses.

Economic Growth: The tax cuts are part of a broader strategy to stimulate economic growth. By putting more money in the hands of consumers, the government aims to boost overall economic activity. A growing economy can create a more favorable business environment, encouraging investment and expansion. Businesses may see improved sales and profitability as a result of increased economic activity.

Cost of Doing Business: While the tax cuts can stimulate consumer spending and economic growth, businesses must also consider the overall cost of doing business. High inflation and potential interest rate increases could offset some of the benefits provided by the tax cuts. Businesses need to plan for these factors to ensure they can maintain profitability.

Got Questions?

If you'd like to discuss the budget and its potential impact on your financial strategy or portfolio, please reach out to your financial adviser. We're here to help and will make time to chat.

I hope this detailed summary helps! If you have any further questions or need additional information, feel free to ask.