Fin-X Pulse: Treasurer targets minimal short term tax cuts in Budget

Dr Jim Chalmers proposed a Federal Budget that lacked a long term vision for the future.

• Households

  • $17 billion in additional tax cuts from 2026: 

    • From 1 July 2026, the 16 per cent tax rate, which applies to taxable income

      
      

      between $18,201 and $45,000, will be reduced to 15% (worth $268).

    • From 1 July 2027, this tax rate will be reduced further to 14% (worth an extra $268).

  • Additional $150 electricity rebates extended to the end of 2025 ($1.8 billion cost)

  • $784.6 million to limit PBS script costs to $25 and $1.8 billion for new and affordable medicines

  • $7.9 billion to make 9 out of 10 GP visits bulk billed by 2030

  • Cutting student debt by -20% ($19 billion)

  • $426.6 million for a new 3 Day early childhood education guarantee

  • Making Free TAFE permanent and allocating $2.5 billion to reform universities and support underrepresented admissions.

• Businesses

  • Over $3 billion to support green metals production under Futer Made in Australia

  • $2 billion expansion of the Clean Energy Finance Corporation

  • National Competition Policy measures including a $900 million National Productivity Fund

  • Energy efficiency grants for small and medium-sized businesses

  • $20 million to support Australian producers through the Buy Australian Campaign

• Housing

  • Building more homes and adopting faster construction methods

  • Constraining migration: down from +335k this year, to +260k next year, then +225k

  • Banning foreign buyers from purchasing existing dwellings for two years

  • Expanding Help to Buy

  • Up to $10,000 for eligible apprentices in housing construction occupations

• Infrastructure 

  • $17.1 billion in major infrastructure investments

  • $3 billion to complete the National Broadband Network

• Fiscal position 

  • Since MYEFO, forecast receipts have increased by $+6.9 billion in 2025–26 and decreased by $5.8 billion over the five years to 2028–29, as a result of additional spending in this Budget.

  • The underlying cash balance is estimated to be a $27.6 billion deficit (1.0% of GDP) in 2024–25, $+0.7 billion higher than forecast at MYEFO in nominal terms, but broadly equivalent in per cent of GDP terms.

  • An underlying cash deficit of $42.1 billion (1.5% of GDP) is forecast for 2025–26.

  • Policy decisions since MYEFO have been limited to $0.1 billion in 2024–25. Over the five years to 2028–29 net policy decisions have increased the underlying cash deficit by $ +34.9 billion.

Fin-X Wealth View

• The Treasurer proposed an expansive Budget that attempts to persuade a large number of Australians to vote Labor. He has, however, also received some criticism for focusing on giveaways and pushing harder tax and productivity reform into the next term.

• The tax cuts were the only significant economic surprise, paid for by better-than-expected outcomes in late 2024. However it remains to be seen if a $5 a week tax cut will win over voter approval. The Shadow Treasurer has already vowed not to support these particular cuts. The leader of the opposition delivers his reply on Thursday evening.

• The papers assert that "A soft landing in our economy is increasingly likely". That is technically true, given that the private sector is accelerating. But it completely ignores the 7 consecutive quarters of negative GDP-per-capita experienced in 2023 and 2024.

• Extending the electricity rebates will likely allow the Treasurer to call victory on headline inflation. Lower migration will also reduce some of the upward pressure on CPI from fiscal expansion. However, if passed, the RBA will likely continue to look through the headline and focus on underlying inflation. No change is likely next week as a result of today's Budget.

• That said, the February RBA CPI forecasts are similar to Treasury in FY25 and +0.2% higher in FY26 at +3.2% yoy. 

• The measures very slightly raise the likely path of rates, particularly from 2026, which is marginally supportive of the Australian dollar. However, by then developments in the US and Chinese economies may also exert considerable influence if they slow as we anticipate.

• We expect an imminent announcement for the election so that Labor can take some momentum from this budget into their campaign.

  
  

  

  
  
  
  

  Disclaimer

  
  

  The contents of this communication is prepared by Brerona Capital Asset Management Pty Ltd (A.C.N. 627 650 293; AFSL 520526). The information contained in this communication is general in nature and does not take into consideration any investors personal objectives, goals, needs and financial situation. You should not rely on the information contained in this document to make any investment decisions without first consulting an investment professional such as your financial adviser. Any unauthorised use of this document is prohibited. This document (including any attachments) is intended only for the addressee, it may contain information of a privileged and confidential nature. If you are not the addressee of this communication, you must not copy, reproduce, disseminate or use this email and its contents. If this communication has been received in error by you, please inform us immediately and securely delete. Sharing, transmitting, copying, disseminating all or part of the contents of this document may result in a breach of the Federal Privacy Legislation and or copyright and trademark infringement of Brerona Capital Asset Management Pty Ltd and its related entities.