Treasurer Jim Chalmers’ fourth budget revealed a $207 billion fiscal turnaround, with tax receipts, superannuation revenue, and debt reduction playing key roles.
In delivering the budget on Tuesday night, Treasurer Jim Chalmers proudly declared that the government has engineered the largest fiscal turnaround in a single term, with this year’s budget $207 billion better than what it inherited.
“In our first 2 years, we posted the first back‑to‑back surpluses in nearly 2 decades,” Chalmers said, underscoring the government’s fiscal prowess.
“Our deficit this year has almost halved since we came to office,” he added, with the $27.6 billion deficit for 2024–25 coming in at nearly half the level predicted in the PEFO.
“Next year’s deficit is $42 billion, lower than what was forecast at the last election, and lower than at the mid‑year update,” he said.
Gross debt is set to reach $940 billion this financial year, $177 billion less than the inherited level, saving around $60 billion in interest costs over the decade, Chalmers said.
According to budget papers, gross debt as a share of the economy is expected to peak at 37.0 per cent of GDP in 2029–30, 7.9 percentage points lower than the peak in the PEFO, before declining to 31.9 per cent of GDP by 2035–36.
The government attributes what it perceives as fiscal gains to responsible economic management, combining spending restraint, savings measures, and banking revenue upgrades.
Since taking office, the government, Chalmers said, has identified $94 billion in savings, including an additional $2 billion in this budget.
Around 70 per cent of tax receipt upgrades have been banked, with structural improvements made across the NDIS, aged care, and interest costs.
Looking ahead, Chalmers said key priorities for the Labor government include tackling inflation, rebuilding living standards, and leveraging national strengths for future growth.
Budget papers confirmed inflation has moderated substantially across both headline and underlying measures, with inflation now expected to be 2.5 per cent by the middle of this year, 0.25 of a percentage point lower than forecast at MYEFO.
“Excluding the impact of fuel and energy rebates, inflation is expected to sustainably be in the RBA’s target band around the middle of 2025, earlier than the end of the year expected at MYEFO,” budget papers read.
Real GDP is forecast to grow by 1.5 per cent in 2024–25, 2.25 per cent in 2025–26 and 2.5 per cent in 2026–27.
Five key priorities
The budget is built around five main priorities: easing the cost of living, strengthening Medicare, increasing housing supply, investing in education at all levels, and making the economy more productive and resilient.
On the latter point, Chalmers said: “This is one way to ensure Australians can be primary beneficiaries of the churn and change we see around the world.
“Another is by investing in our competitive advantages. Or by looking for opportunities to join with our partners in new, resilient supply chains. By becoming an indispensable part of the net zero economy. By preparing our people to adjust to and succeed in the new world being created in front of us. By building a Future Made in Australia.”
Superannuation
The government revealed that superannuation tax receipts were a major factor behind the $9.4 billion upward revision in tax receipts (excluding GST and policy decisions) over the five years from 2024–25 to 2028–29.
Specifically, the superannuation revenue windfall amounted to an additional $9.7 billion, driven by stronger projected investment returns from super funds.
The budget’s sole superannuation measure, actually printed in the Women’s Budget document, was the payday super reform, set to begin on 1 July 2026, with the government having earlier confirmed $404.1 million over four years from 2024–25 to support the reform.
The budget also includes a commitment of $50 million over three years to expand the Tax Integrity Program, allowing the ATO to ensure timely payment of superannuation liabilities by Australian businesses.
Tax cuts
A standout element of the budget was tax cuts, with the government announcing it will deliver new tax cuts to every Australian taxpayer from 1 July 2026.
These tax cuts are in addition to the first round of tax cuts for every taxpayer that the government legislated last year, which have been rolling out since 1 July 2024.
“The new tax cuts will provide more cost-of-living relief and return bracket creep. They will also boost labour supply, particularly for women,” budget papers read.
Under the government’s new tax cuts:
• From 1 July 2026, the 16 per cent rate will be reduced to 15 per cent.
• From 1 July 2027, the 15 per cent rate will be reduced further to 14 per cent.
This measure is estimated to decrease receipts by $17.1 billion over five years from 2024–25.
Future Made in Australia
The Treasurer unveiled a plan to drive long-term productivity growth.
“Our plan for productivity growth doesn’t mean making Australians work longer for less,” he said.
“It’s about investing in our people and doing more to unlock our potential by boosting dynamism and competition.”
A key part of this is its “Future Made in Australia” agenda, aimed to position the nation to navigate five major global shifts: the move from globalisation to fragmentation, the transition from hydrocarbons to renewables, the rise of AI, an ageing population, and changes to the industrial base.
“All this puts a premium on resilience,” the Treasurer stated. “That’s what a Future Made in Australia is about.”
As part of this strategy, the budget includes over $3 billion to support the production of Australian-made green metals such as aluminium and iron. This builds on recently legislated tax incentives for critical minerals and green hydrogen.
The government is also backing clean technologies through its Future Made in Australia Innovation Fund and a recapitalisation of the Clean Energy Finance Corporation. These initiatives aim to develop clean energy manufacturing, green metals, and low-carbon liquid fuels, while unlocking private investment.
“Our future growth prospects lie at the intersection of our industrial, resources, skills, and energy bases, and our attractiveness as an investment destination,” the government said. “So we can grasp the jobs and opportunities of the net zero transformation.”
Defence in the spotlight
The government also highlighted the growing link between economic security and national security, emphasising its commitment to stability in the region by supporting banking services in the Pacific.
As part of efforts to bolster Australia’s security, the government has committed an extra $50.3 billion in defence spending by the mid-2030s, ensuring that defence funding will exceed 2.3 per cent of GDP by the early 2030s.
Additionally, $45 million is being invested in the government’s initial response to the 2024 Independent Intelligence Review.
Reactions flow in
Krishna Bhimavarapu, APAC economist at State Street Global Advisors called the budget on Tuesday night “surprisingly more than a plain vanilla offering”.
“The icing is the surprise tax-cuts, which means private consumption could get a minor shot in the arm that will further accelerate the economic recovery. The government not only delivered healthcare relief, and cost-of-living subsidies, but also is seriously thinking about productivity, clean-energy, housing, defence, and infrastructure spending. It is impressive that the government aims to deliver this stimulus with a modest rise in the deficit,” Bhimavarapu said.
“Still, we think the government could do more in the manufacturing sector, whose share in GDP and employment have structurally fallen to a third around 5 per cent over 40-years. At least we expect that discussion to dominate debates ahead of the upcoming elections.”
Similarly, Financial Services Council chief executive, Blake Briggs, congratulated the Treasurer for focusing on cost-of-living challenges facing Australians, and “delivering stability and certainty for the financial services industry in advance of the federal election”.
“As one of the largest contributors to the domestic economy, this continued fine tuning of the financial services framework is welcome, however there remains significant opportunity for the next parliament to refocus on economic growth and regulatory simplification opportunities to grow the economy.”
The Super Members Council (SMC), however, criticised the government for not going far enough with its superannuation reforms, particularly highlighting the failure to address the outdated law that denies most teen workers up to $10,000 from their retirement savings.
“Australians strongly support universal super – and know it’s a workplace right. Super should be for everyone, paid from the first hour of your first job. Fixing this outdated exclusion is long overdue,” CEO Misha Schubert said.
“As every smart investor knows, it’s the dollars you invest earliest that work hardest to grow your compound returns. Every Australian worker, at every age, deserves the right to set themselves on the path to a dignified retirement.
“Super is Australia’s economic stabiliser – the investment of the savings of millions of everyday Australians powers Australian business and creates new jobs. Securing the system’s fundamentals and making super even stronger and fairer is key to Australian prosperity.”
