What the 2025–26 Federal Budget Tax Cuts Mean for You

The Albanese government has delivered some welcome news in the 2025–26 Federal Budget, with new tax cuts announced for all Australian taxpayers. These changes are designed to help ease the cost of living and ensure fiscal policy stays aligned with inflation targets set by the Reserve Bank of Australia.

What’s Changing?

The tax cuts will roll out over two years, starting from 1 July 2026:

👉 From 1 July 2026:The 16% tax rate (which is scheduled to be reduced from 18% on 1 July 2025) on income between $18,201 and $45,000 will be reduced further to 15%.

👉 From 1 July 2027:This tax rate will be cut again, dropping to 14%.

How Much Will You Save?

According to the Budget papers:

• An average income earner will receive an extra $268 in tax cuts in 2026–27, and this will increase to $536 per year from 2027–28, compared to the current (2024–25) tax rates.

• When combined with previously legislated tax cuts, this adds up to $1,922 in total savings in 2026–27 and $2,190 annually from 2027–28, compared to the 2023–24 settings.

• By 2027–28, the average combined tax cut for all taxpayers is expected to be around $2,548 per year — that’s an extra $50 per week in your pocket.

  
  

The Broader Impact

The government’s modelling suggests these cuts will:

✅ Boost household disposable income by 1.9% by 2027–28.

✅ Increase total hours worked by around 1.3 million hours per week, equivalent to more than 30,000 full-time jobs.

✅ Significantly impact women’s workforce participation, with an expected increase of 900,000 hours worked per week compared to current settings.

Who Benefits Most?

The Australian Council of Trade Unions (ACTU) has praised the announcement, highlighting that low-income workers, women, and young people are likely to benefit the most from these tax changes.

“Tax cuts, combined with rising wages, mean this Budget delivers higher incomes for workers and their families,” said ACTU President Michele O’Neil.

The Conversation on Tax Reform Continues

While households will welcome the extra savings, there are still concerns about bracket creep — where inflation pushes incomes into higher tax brackets over time, increasing tax burdens without real increases in purchasing power.

Cassandra Winzar, Chief Economist at the Committee for Economic Development of Australia (CEDA), said:

“All sides of politics must start the conversation with Australians about our tax system to lay the foundations for proper reform. Current arrangements are unsustainable and deeply unfair to young people.”

Need Help Understanding How These Tax Changes Affect You?

If you’d like to know how these tax cuts will impact your personal or business tax situation, our team is here to help. Contact us today for tailored tax advice and planning!