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The government will deliver further tax cuts in 2026 and 2027 in addition to the previous round of cuts introduced in July 2024.
Government announces new tax cuts in Federal Budget
25 March 2025
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7 minute read
The Albanese government has announced new tax cuts for all Australian taxpayers as part of the 2025-26 Budget handed down tonight.
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The tax cuts will be delivered over a two year period to help ensure that fiscal settings remain consistent with inflation sustainably remaining in the Reserve Bank of Australia’s target band.
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 per cent.
From 1 July 2027, this tax rate will be reduced further to 14 per cent.
The Budget papers said the tax cuts would see a worker on average earnings receive a new tax cut of $268 in 2026–27 and $536 per year from 2027–28, compared to 2024–25 tax settings.
"Combined with the first round of tax cuts, they will receive a total tax cut of $1,922 in 2026–27 and $2,190 per year from 2027–28, compared to 2023–24 tax settings," the papers said.
"In 2027–28, the average combined annual tax cut across all taxpayers is expected to be $2,548, or around $50 per week."
The government said the combined tax cuts would allow people to keep more of what they earn, "boosting nominal household disposable income by 1.9 per cent by 2027–28".
"The Government’s combined tax cuts are also expected to support labour force participation, increasing total hours worked by about 1.3 million hours per week compared to 2023–24 tax settings, equivalent to more than 30,000 full time jobs," the Budget papers said.
"This increase is mostly driven by women, who are expected to increase their labour supply by 900,000 hours compared to 2023–24 tax settings."
The Australian Council of Trade Unions has welcomed the announcement, stating that the two new tax cuts will benefit low-income workers, women and young people the most.
“Tax cuts, combined with wages continuing to rise, means this Budget delivers higher incomes for workers and their families," said ACTU president Michele O’Neil.
The Committee for Economic Development said while the tax cuts will be welcomed by households, they fail to address the ongoing concerns around bracket creep.
“All sides of politics must start the conversation with Australians about our tax system to lay the foundations for proper reform," said CEDA Chief Economist Cassandra Winzar.
“Current arrangements are unsustainable and deeply unfair to young people."
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