Australia's 2025 Budget: Labor Unveils Tax Cuts, Medicare Relief, And Energy Support

Australia's Labor government unveiled a AU$17.1 billion plan featuring new tax cuts and financial relief measures for middle-income Australians, aimed at addressing voter concerns while looking to win a second term in the upcoming May election.

In his fourth budget, Treasurer Jim Chalmers has also introduced new measures to strengthen economic resilience and competitiveness, recognizing the growing global risks from trade wars and geopolitical tensions.

Chalmers explained that the tax cuts, which start in mid-2026, will make a big difference for taxpayers. The first stage will reduce the lowest tax rate from 16% to 15%, helping people who earn between AU$18,201 and AU$45,000 a year, The Guardian reported.

In 2027, the rate will drop again to 14%, allowing some taxpayers to save up to AU$538.

In addition, the government is raising the low-income threshold for the Medicare levy by 4.7%, which means more workers will be eligible for tax relief. For example, workers earning between AU$27,000 and AU$34,000 could save up to AU$122 per year.

The government has already committed an additional AU$8.5 billion for Medicare and AU$690 million to lower the cost of medicines, in addition to allocating AU$1.8 billion for energy support for all households in the second half of this year.

The government expects these efforts to be funded by stronger-than-expected tax revenue, thanks to a tight job market and high profits in the mining sector. However, the increased spending may lead to a slight rise in inflation, which is projected to hit 3% before stabilizing at 2.5%, Reuters reported.

The tax cuts are expected to counter the Coalition argument that Labor would lead to higher average tax rates for Australian workers, a situation known as bracket creep.

Coalition leader Peter Dutton, who has proposed reducing the number of public servants as part of a wider spending cut plan, will respond to the budget on Thursday night.

Boost to local industry

To support local industry, the budget includes AU$3 billion to boost the production of green metals and AU$20 million to promote Australian-made products. These initiatives aim to improve the country's economic competitiveness.

Bracing for global challenges

Chalmers forecasted a strong Australian economy despite increasing global challenges. The economy has bounced back from its lowest point, growing at the fastest rate in two years last quarter, while the unemployment rate remained at a historically low 4.1%, he pointed out.

"This genuinely is a story of Australian exceptionalism in the context of global economic uncertainties," Chalmers said.

The budget also projected a modest impact on Australia from higher U.S. tariffs imposed by the Trump administration by 2030.