The 2025 Federal Budget has unveiled a major financial boost for every Australian taxpayer, promising tax cuts worth up to $2,548 a year.
Announced by Treasurer Jim Chalmers, the policy is part of a broader effort to ease cost-of-living pressures and stimulate the economy starting July 1, 2026.
The multi-year tax relief plan will be rolled out in two stages across 2026 and 2027, building upon the revised Stage 3 tax cuts introduced in the previous year.
Federal Tax Cuts 2026–2027: What’s Changing?
From July 1, 2026, the 16% tax rate on incomes between $18,201 and $45,000 will be reduced to 15%. A year later, from July 1, 2027, that same bracket will drop to 14%, marking the lowest marginal tax rate in over 50 years.
The tax cuts are estimated to cost the budget $17.1 billion over the forward estimates but are aimed at putting more money directly into taxpayers’ pockets.
Tax Cut Savings by Year and Income Bracket
| Income Level | 2026 Tax Cut | 2027 Tax Cut | Total Annual Savings |
|---|---|---|---|
| $45,000 | $150 | $300 | $450 |
| $60,000 | $200 | $400 | $600 |
| $79,000 (Average) | $268 | $536 | $804 |
| $120,000+ | $1,200+ | $1,348+ | $2,548+ |
The government states that the average worker earning around $79,000 annually will enjoy an additional $804 per year, while higher earners will see even greater relief.
Cost-of-Living Relief Measures in the 2025 Federal Budget
The tax cuts are just one part of a larger cost-of-living support package introduced in the 2025 Budget. Here are the key highlights:
- $150 Energy Rebate: The energy rebate will continue through 2025, offering two more quarterly payments beginning July 1.
- Cheaper Medicines: Maximum cost of PBS-listed medicines will drop from $31.60 to $25.
- Free GP Visits: A historic $8.5 billion Medicare investment aims to make 90% of GP visits free by 2030.
- Cheaper Childcare: From January 1, 2026, the activity test for childcare subsidies will be removed, ensuring three days of subsidised care per week for all eligible families.
- HECS Debt Relief: Student loan balances will be cut by 20% if Labor is re-elected, and the repayment threshold will rise, allowing graduates to earn more before repaying.
Economic Impact and Government’s Justification
According to Treasurer Chalmers, “These additional tax cuts are modest but will make a difference.” The tax reduction plan is designed to support low and middle-income Australians while addressing wage stagnation and inflation challenges.
The government maintains that this initiative is fiscally responsible and builds on the tax cuts delivered in July 2024, offering consistent, cumulative relief to households over time.
How Will Australians Receive the Tax Cuts?
There is no action required from taxpayers to receive the upcoming reductions. The Australian Taxation Office (ATO) will automatically apply the new rates to individual tax brackets in the 2026–27 and 2027–28 financial years.
Workers will begin to notice the changes through reduced PAYG tax deductions, which will increase weekly take-home pay by around $10–$50, depending on income.
The 2025 Federal Budget offers welcome financial relief for Australians across the board. With up to $2,548 in annual tax cuts, combined with cheaper childcare, energy rebates, and healthcare, the government aims to ease the burden of living costs in a tough economic climate.
As 2026 approaches, taxpayers can expect more money in their pockets, contributing to greater household savings and boosting overall economic confidence.
FAQs
Who qualifies for the tax cut in the 2026–2027 budget?
All Australian taxpayers, regardless of income, will benefit from the new tax reductions.
When will the new tax cuts be implemented?
Stage 1 begins on July 1, 2026, with further cuts coming into effect on July 1, 2027.
Do I need to apply to get the tax cut?
No application is needed. The ATO will automatically adjust your tax bracket and PAYG deductions.