The 2025-2026 Federal Budget was brought on in its full form thanks to ex-Tropical Cyclone Alfred being in the direct path of any ambition Prime Minister Anthony Albanese may have had to hold this year’s Federal Election prior to the Easter break, and with it comes a mixed bag of rainbows and storm clouds.
This Budget, though light on surprises, delivered a few pots of gold at the end of the rainbow, specifically delivering on some income tax relief.
Perhaps more importantly, the Budget offered a valuable roadmap for promises and debates people can expect on all channels as the election campaign-proper approaches.
So, what did the Budget deliver?
The expectation that the Albanese Government would keep its powder dry to be used to curry votes over the campaign period came to fruition, as did a projected budget deficit for 2025–26, a shift from the recent surpluses.
Although expected, the deficit poses a considerable challenge for the Federal Government as it approaches the election. Furthermore, it has significant implications for the country’s medium-term fiscal outlook through to the end of the decade and possibly beyond. It not only puts pressure on the government’s fiscal credibility but also raises broader concerns about its capacity to fund key commitments without compromising essential services or increasing debt.
Voters will be watching closely to see how the government balances responsible economic management with the delivery of its policy promises, including around the hot button issue of ongoing household cost-of-living pressure.
A likely battleground in the upcoming election campaign, the opposition will no doubt seize on the deficit position as evidence of economic mismanagement. However, this will be a difficult narrative for the opposition to run, given they have supported most of Labor’s major election commitments to date, and were unable to deliver a surplus themselves over nine years of government. Criticising the Government’s fiscal management while having endorsed much of its spending agenda may undermine their credibility and weaken the impact of their argument.
But as we know, the headline figures are only part of the story, so let’s look at the underlying drivers of this deficit, and the government’s justification for them.
Tax changes: are we addicted to income tax?
Tax changes are always a key concern for businesses, and this Budget is no exception. While the Budget doesn’t introduce sweeping tax reforms, it did go some way to addressing income tax bracket creep offering staged relief to the lowest income bracket.
Under this Budget, starting next year, two tax cuts will be delivered for every Australian with an initial reduction from 16 per cent to 15 per cent, and then 14 per cent the following year.
The Federal Government collected $357.8 billion in income tax and $145 billion in company and resource rent tax, which together makes up more than two-thirds of the nation’s $750.3 billion revenue take.
Cost-of-living relief: A genuine helping hand, or a pre-election ploy?
The Budget’s focus on cost-of-living relief has been consistent throughout their term in Government. The proposed measures, including the $150 power bill rebate for every household, reduced Pharmeceutical Benefit Scheme (PBS) medicine costs, and funding for more bulk-billed GP visits, are clearly designed to appeal to voters struggling with rising expenses.
These measures are a calculated attempt to win back support from those feeling the pinch of inflation, though it’s worth noting that the energy rebate is only half the value of previous rebates, suggesting a more measured approach that balances political appeal with fiscal restraint.
Other household relief, peppered with a productive lens, is the change to the childcare subsidy, with an extension of the change announced in December last year.
The budget offered little relief for business, particularly consumer facing businesses where ongoing cost-of-living concerns will likely continue to impact on consumer spending and demand in the broader economy.
Also notable was the decision not to extend the $20,000 threshold for the Instant Asset Write Off beyond June 30, 2025. Consequently, from July 1, 2025, the threshold is set to revert to the legislated amount of $1,000. This means that small businesses will only be able to instantly write off assets costing less than $1,000, with assets above this amount requiring depreciation over several years.
Infrastructure investment: where are the opportunities for growth?
The Budget allocates significant funds to infrastructure projects, including $7 billion for Queensland’s Bruce Highway, $1 billion for a Western Sydney rail link, and $2 billion for Melbourne Airport station upgrades.
In theory, these projects are welcome news for the construction and engineering sectors, however servicing these projects in an environment of ongoing skills shortages will be problematic. It is also worth noting the inflationary risks associated with delivering large-scale government infrastructure projects, which could place further pressure on costs, timelines and construction workforce availability.
Housing: more trades = more houses
Housing remains a key issue across Australia, and the focus on building industry capacity is welcome with a boost incentive to entice more people to take up trade apprenticeships in the home building sector, up to $10,000 to be paid in five $2000 payments.
Another initiative to boost the mobility of skilled labour is the introduction of a national licensing scheme for apprentices.
While upskilling the residential construction sector was the focus, the Budget also imposed restrictions on foreign ownership and land banking, which may yet have perverse consequences for listed companies. The ban on foreign ownership of established dwellings, which mirrors a commitment made by Peter Dutton last year, will likely add pressure to the rental market with net international migration figure of 260,000 projected for the year ahead, and no direct attention of targeted migration to boost construction.
The decision to ban non-compete clauses for people earning up to $180,000 may also improve mobility by removing a barrier that prevent employees from starting their own businesses.
The green transition: is Australia budgeting to go green?
The Federal Budget’s allocation to the Future Made in Australia Innovation Fund, alongside the recapitalisation of the Clean Energy Finance Corporation, signals a strong commitment to aligning Australia’s industrial strengths, workforce capability, and energy resources with net zero goals.
This investment recognises that Australia’s long-term economic growth lies at the intersection of clean energy, advanced manufacturing, and global capital flows, positioning the nation to seize the jobs and strategic opportunities of the net zero transformation.
A $712 million boost for WA’s clean energy future was announced during Chris Bowen’s visit last week, backing four big battery projects under the Capacity Investment Scheme. The Boddington, Merredin, Muchea, and Waroona batteries will add 654MW of storage, enough to power 600,000 homes at peak and create hundreds of jobs. With $145 million in community benefits, including $41.5 million for First Nations groups, the investment is a major step toward phasing out coal by the State Government’s 2030 deadline.
The challenge for the Albanese Government in selling this economic diversification and advancement framework is that it is heavily reliant on the secure and affordable supply of gas to have any chance of taking flight. The problem with that, of course, is the energy transition and the votes that follow are a tale of two very separate sides of the country.
Opposition Leader Peter Dutton was out just ahead of the Budget spruiking the idea of a national domestic gas reservation policy, designed to boost supply of this key baseload power input, and in doing so reduce the price of the commodity right through the supply chain to retail deals.
Western Australia, of course, already has its own domestic gas reservation policy, which compels gas companies operating in the State to make 15 per cent of gas produced offshore WA available for domestic gas supply. The headache for high-volume industrial users of gas in WA, when it comes to workable energy transition policy, are potential concessions the Albanese Government could make to the Greens.
Anything for the regions?
It has been very difficult not to notice the influx of Cabinet level Albanese Government Ministers visiting not just Perth, but regional Western Australia in the past five months.
The significant swing away from Labor in large areas of regional Western Australia in the recent State election will be further cause for alarm, as unlike the metro swing that was more unpredictable, the Nationals were a key beneficiary of that vote in WA.
Why? It is simple – the non-negotiable decision from “The East” to close down the live sheep export market, which predominately impacts WA, has resonated widely and not just in key livestock production areas, but in the towns and major regional centres that support those communities. The Nationals have capitalised on the prevailing sentiment.
Do we have an election date yet?
With the Budget now out of the way, an election date must be imminent.
While the election promises and platforms are yet to play out, tonight’s Budget offered a clear indication of the government’s priorities and its vision for the future.
The coalition will have their chance to set a vision of Australia on Thursday with the Budget in reply.
Wrap up
The 2024-2025 Federal Budget presents both challenges and opportunities for corporate Australia. By understanding the Budget’s key provisions and aligning your priorities with government policy, businesses can identify opportunities, tailor their strategies accordingly, and implement a targeted government engagement plan to maximise outcomes and position themselves for long-term success. Purple is here to help you through this process, providing expert advice and strategic guidance to ensure that your organisation is well-prepared for the future.
Keep an eye out Thursday for Purple’s analysis of the Budget in Reply!
This Insight article was prepared by Emily Young (Director), Michael Cairnduff (Director), Chris Leitch (Associate Director), Keira McConkey (Associate Director) and Dan Wilkie (Content Editor).
